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Choosing Wisely: Business Credit Card vs Debit Card

By Lindsey Rudy

Published on 18 Oct 2023 6 min read

Business credit cards and debit cards are easy and convenient ways to make company purchases. They may look similar, but do they work the same way? As a business owner, selecting the right payment method can enhance your ability to manage your finances and grow your business. When it comes down to choosing between a business credit card vs debit card, how do you know which is best for your company? Let’s find out in this article.

What Is a Business Credit Card?

A business credit card provides access to a revolving line of credit that you can use to make purchases. In exchange for extending credit, the credit card company charges interest and fees on your unpaid balance. You can avoid these costs by paying your credit card balance in full when you get the bill.  

What Is a Business Debit Card?

A business debit card is a payment card tied to your company’s checking account. As you make purchases on your business debit card, your bank automatically deducts the funds from your account. Your ability to buy goods and services with your business debit card is limited by how much money you have in your bank account.  

Similarities Between Business Credit Cards and Debit Cards

Not only do business credit cards and debit cards look alike, but they also share plenty of similarities, such as:

Convenient to Use

A business debit or credit card makes purchasing goods and services easier. You don’t need to worry about carrying cash or writing a check. Plus, many online vendors accept only credit or debit cards for purchases.  

Separate Business and Personal Expenses

A dedicated business debit or credit card helps separate your company transactions from personal expenses. Keeping personal and business expenses separate makes tracking costs and managing your company’s finances easier. 

Access to Rewards and Perks

Many business credit cards and debit cards offer reward programs where you can earn cash or points as you make purchases. Use your business credit or debit card for purchases and you could save money with cashback rewards or earn points that are redeemable for travel, entertainment, or retail perks. 

Financial Management Tools

Business debit or credit card accounts can make tracking your company’s finances easier. Many debit or credit card accounts come with online tools that help track your company’s spending. Some online tools have budgeting capability, so you can easily see how your actual expenditures compare against what you have planned. 

Differences Between Business Credit Cards and Debit Cards

While business credit cards and debit cards may seem the same, there are some distinct differences between them. Let’s take a look at the differences:

Access to Cash

A business debit card lets you easily withdraw cash from your business checking account. While you may pay a small fee to withdraw funds, quick access to cash can be helpful in emergencies.   

You can also withdraw cash using your business credit card. However, using your credit card to access cash can be costly, as most credit card companies charge higher interest rates on cash advances.  

Interest Charges

If you don’t pay what you owe on your business credit card in full every month, you will be charged interest and fees on the unpaid balance. Unless you have a low promotional rate, most credit card companies charge higher interest rates and fees on the balance you carry to the next billing cycle.  

Using a business credit card to finance your company’s purchases can be costly. You often pay higher interest rates to the credit card company than you would if you took out a loan or line of credit with a bank.  

Meanwhile, a debit card uses the funds in your bank account to pay for your purchases. As such, you pay no interest on what you buy because you have not borrowed any money.  

Build Business Credit 

You borrow money with a business credit card and agree to pay it back later. The activity on your revolving credit gets reported to the credit bureaus. By closely monitoring your spending and making monthly payments on time without exception, your company can build credit. By establishing a good credit history, your company can gain access to future lending options.   

A debit card uses money directly from your bank account to make purchases. Since you aren’t borrowing money, there is nothing to report to the credit bureaus

Potential Debt Accumulation

Making purchases using your business credit card is easy and convenient. However, it’s also possible to overspend using a credit card if you aren’t careful. You can quickly accumulate debt. Since credit card companies charge high-interest rates and fees, your debt can quickly grow. Despite the convenience, you can easily find yourself swimming in credit card debt if you aren’t careful.  

With a business debit card, your spending is limited to the money in your bank account. You won’t run the risk of accumulating debt or incurring costly interest and fees on your unpaid balance.  

Risk of Personal Liability

Even if the credit card is in your company’s name, the credit card company may hold you personally responsible if the card includes a personal guarantee clause. Under the clause, if your company falls behind in its monthly payments, your personal credit could take a hit.

Overdraft Fees

Your company’s bank account is linked directly to your business debit card. If your spending exceeds the money you have in your account, you may incur hefty overdraft fees. Overdraft fees don’t apply to credit cards.

Fraud Protection 

Debit cards link to your bank account, so protecting your money against fraudulent withdrawals or charges is harder. You may have difficulty disputing any unauthorized charges if your debit card is lost or stolen. Banks may take several days or weeks to investigate fraudulent charges. 

In addition, debit cards may not offer the same fraud protection that credit cards offer – for example, Visa’s zero liability policy excludes commercial card purchases. You won’t have access to the funds in dispute until the matter is resolved. If the amount in question is significant, this can strain your company’s cash flow.  

A business credit card gives greater protection against fraud. If your card is lost or stolen, you won’t have to worry about purchases you did not make.  

Impact on Credit Score

When you use a substantial portion of your business credit card balance or fall behind in monthly payments, your company’s credit score could drop. If your business credit card links to your personal credit, delinquent payments or high card usage could also drag down your credit score.  

Dispute Resolution

If you see a charge that you don’t recognize, you can dispute it with your credit card issuer. Disputing a transaction on your debit card can be more challenging since you’ve already paid for the purchase from your bank account. 

You have the burden of proof and may be more motivated to reach out to the merchant directly to resolve the matter. Alternatively, credit card purchases can be easier to dispute because you can do so before making a payment and wait for the investigation process.  

Choose the Best Payment Option for Your Company 

Choosing between a credit card and a debit card depends on how you manage your business finances. When you assess your financial goals and habits and understand the difference between business credit and debit cards, you can find the option that best suits your company. A business credit card may offer better fraud protection and financing flexibility, though payments can affect your business or personal credit score. With debit cards, you can’t spend more than you have.  

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