Real-Time Reporting

How a Business Credit Card Can Streamline Your Expenses

Get rid of messy business expense processes once and for all with effective Spend Management tools.

Starting a Business

Opening a small company can be exciting, but it takes careful planning and years of hard work to do it correctly. According to the U.S. Bureau of Labor Statistics, statistics show nearly half of all new businesses fail in the first five years.

There are a few reasons that small businesses may fail, but a study by U.S. Bank and SCORE identifies that 82% of businesses fail because of poor cash management. That means the more efficiently you handle the finances of your business, the better suited you are to succeed.

So, what steps can you take to build your business on a strong foundation? The answer starts with choosing the right credit card.

What Are Small Business Credit Cards?

Small business credit cards are essentially business credit cards for entrepreneurs in their early years of building a business.

When a business is young, entrepreneurs typically need to establish a “ramp-up” period to build sustainable, long-term profitability. During this time, some of the business’s income (accounts receivable) is not enough to sustain the expenses the business incurs (accounts payable).

This leads small business owners to seek out a way to pay for their expenses in a cost-effective manner while maintaining short-term profitability. Additionally, business owners also need a way to establish business credit to boost their chances of receiving future financial grants, such as small business loans, as their ramp-up period continues. This is where small business credit cards come in.

Consumer Credit Cards vs Small Business Credit Cards

A small business credit card differs from consumer credit cards in a few ways. The best small business credit cards may offer certain perks that are not available on regular consumer cards. For example, small business credit cards may offer discounts on common business supplies, additional travel miles and rewards, larger cash-back rewards, or customizable restrictions on specific spending categories.

Applying For a Small Business Credit Card

Credit cards for small businesses can be difficult to get, so it’s important to be aware of some of the challenges you may face. Small businesses may have difficulty obtaining credit cards simply because they don’t have the credit history that some more established (older) companies do.

To get a small business credit card for your business, companies typically rely on the credit history of their business owners; a strong credit score is recommended before you submit a credit check to qualify for a card.

Small business credit cards work like any other business credit card. They have credit lines attached to them so that purchases on the cards add to the company’s amount owed; this amount is to be paid off gradually as the company is stabilizing in its profitability. Note that small business credit cards typically lead to some interest charges if the balances are carried over from month to month.

Who Uses Small Business Credit Cards?

Having access to a small business credit card can help solve several issues that are unique to new businesses. They’re important primarily to build business credit and to keep the owners’ personal finances separate from their company finances. Personal finances should never mix with business transactions, so keeping them separate by using a credit card makes it easier to set a separate professional budget. It also gives the business owner peace of mind knowing that they’ll always have a separate line of credit on-hand when they incur any unforeseen business transactions.

Small business credit cards are also great for business owners who hire new employees. To complete tasks, these employees often need to make supply purchases. To prevent the need for cash reimbursement or card-sharing, U.S. Bank Spend Management allows business owners (or other admins) the flexibility to give employees their own card with customizable spend limits. That way, employees always have a source of company funds while giving business admins the peace of mind that company funds are being used properly.

How Much Transaction Insight Do You Have When Employees Use Small Business Credit Cards?

Traditional business credit cards have few available controls, making it difficult for you to keep track of your business credit card spending. Some cards, however, may offer additional controls with the ability to limit transactions by dollar amounts or specific dates.

Compared to other payment methods, such as cash or checks, a business credit card for small businesses can provide more security. Petty cash funds are often difficult to track and sometimes misused or stolen. Payment systems that rely on checks have approval processes that are both time consuming and high in transaction cost. Like petty cash, checks can also be misused.

The best credit cards for small businesses not only provide an alternative payment method to cash or checks, but also the flexibility to set customizable spend boundaries mentioned previously.

Alternatives to Small Business Credit Cards

There are several alternatives to a credit card for a small business, including:

  • Bank loans
  • Crowdfunding
  • Alternative loans
  • Accounts receivable factoring
  • Withdrawing from retirement or other personal accounts
  • Debit cards for startup companies
  • Prepaid cards for startup companies

Each alternative, however, presents its own set of challenges.:

For example:

  • Banks are unlikely to extend business loans to new businesses.
  • It can be difficult and time consuming to raise funds through crowdfunding websites.
  • Alternative loans may charge very high interest rates, affecting affordability
  • Pulling from your other accounts (personal or professional) for any purpose can hinder your personal financial goals

Small Business Credit Cards vs Debit Cards

Choosing a debit card over a small business credit card typically has drawbacks, including:

  • The inability to gradually pay back funds (no credit line)
  • Your accounts receivable must always amount to more than your expense costs to fund prepaid debit cards
  • The inability to pay large unforeseen expenses without strong accounts receivable
  • The inability to grow your business credit score.
  • Withdrawing from retirement or other personal accounts
  • The inability to earn cash-back rewards

Problems of Traditional Small Business Credit Card Fraud

Credit card fraud is a huge problem for consumers and businesses alike. The U.S. has the third highest rate of credit card fraud in the world, accounting for 47 percent of all reported cases according to CreditDonkey.

Thankfully, more modern small business credit cards offer added features that can help to significantly prevent fraud risk.

Gaps That The Best Traditional Small Business Credit Cards Don’t Address

There are areas that even some of the best traditional business credit cards cannot fill. While they’re sufficient for solving some business needs and providing rewards, there may be better options. The biggest difference between traditional small business credit cards and more modern options: transaction tracking and spending guardrails.

Most business credit cards do not offer robust spending controls. Instead, the credit limit on the cards will represent the maximum amount that employees can spend. That means that there is essentially little to no oversight on how the card is being used. This can lead to employee overspending due to lack of expenditure tracking or because of fraud.

Transaction Tracking and Receipt Management With Traditional Small Business Credit Cards

Companies that utilize a traditional credit card typically take extra steps to manage their expenses. Some businesses hand out company credit cards to their employees to use to make authorized purchases on behalf of their company.

Employees must then track their expenses and submit timely expense reports. They also must ensure they save their receipts and turn them in with the correlating expense reports that most accountants ask for when reconciling company expenses. During this time, it’s not uncommon that receipts are lost, and the accounts payable staff are left scrambling to track them all down.

Businesses that rely on traditional company credit cards for their day-to-day spending needs may not have real-time insight to know how much money was spent within the company’s credit limit. Instead, admins might have to wait until the next credit card statement to get an accurate breakdown of transactions that have accrued over several weeks.

Additionally, organizations can set up controls rules for each individual card based on the card holder, their department, spending amount, spending period, merchant, merchant category, and more to further ensure that employees are only making authorized purchases.

Why Modernized Small Business Credit Cards Are A Better Alternative

Modern small business credit cards off an exciting alternative to traditional small business credit cards. The biggest reason?

They offer better spend management features that best prevent fraud. These special features allow businesses to set customized controls that limit where the cards can be used, how much can be spent, and when the cards are active. This flexibility also means startup credit cards can be turned on/off remotely at any time, giving the business owner greater peace of mind if a card is lost or misused.

Card Controls That Come With A Modernized Small Business Credit Card

The spend controls typically available with modern small business credit cards are more robust than the previously mentioned alternatives. These cards offer preset spend category features that make it feasible to eliminate any transaction approval process or concern of misused funds. Instead, admins can have a “set it and forget it” mentality while monitoring everything from an online dashboard.

They can set individual spending categories on each card by the day, according to the needs of their employees.This flexibility takes the burden of unknown spending out and gives admins the analytics the need to make quick decisions and scale smarter business spending.

What Are Virtual Credit Cards?

Another great option for new businesses is a virtual card for small businesses. Virtual cards are cards with 16-digit numbers and a CVV code that is generated on-the-spot; these are great for purchases online, over the phone, or for merchants with in-person touch-to-pay options straight from a mobile wallet.

Each has its own credit limit line. The largest benefit of a virtual card is that the numbers themselves cannot be used by thieves to gain access to the accounts or to the businesses’ sensitive information. They can be set to expire as soon as they have been used to help prevent startup fraud.

Different Kinds of Virtual Cards

There are several different types of virtual cards for business, including the following:

  • Small business virtual numbers
  • Small business procurement cards

Small business virtual numbers are cards that can be generated and used for one-off purchases. Once the purchase has been completed, the numbers immediately expire so that they cannot be used by others.

Small business procurement cards are virtual cards that can be distributed to specific employees to use for ongoing purchases that they need to make as a part of their jobs. This aligns with a more traditional use-case of most company expense cards, only now with better tracking. They also don’t need to be physically in-hand for an employee to use them. 

Additional Benefits of Credit Cards For New Businesses

There are several other benefits of modern credit cards for small businesses, including the following:

  • Ability to avoid traditional payment systems such as reimbursements, petty cash, and checks
  • A simple way to consolidate funds as employees are on-the-go
  • The ability to edit and update software controls in real-time
  • Ability to utilize a digital receipt capture system
  • The ability for employees to request fund and/or control changes from anywhere
  • Flexibility for your employees to make purchases when they are needed without filing requisition forms
  • Automation of accounts payable processes
  • Automatic importation of transaction information
  • Automatic categorization/bookkeeping capabilities

The benefits of modern credit cards for small companies make them an attractive choice for entrepreneurs in both the short and long-term.

What Is The Best Small Business Credit Card Option?

The best small company credit card solution is a modernized credit card that comes with software that can streamline your business spend from point-of-sale transactions to expense reconciliation. A customizable company card can offer better spend management features that can better equip businesses to control their finances and minimize fraud before any of these risks increase.

Modern credit cards for new businesses may also be easier for companies to get approved for. Purchases that are made with these cards will also offer cashback rewards and help to build a strong business credit score.

The Bottom Line

A business credit card from U.S. Bank is an excellent choice for companies large and small because of the extensive spend management features that coincide with it. Business owners can achieve streamlined spend management by issuing the number of cards that they need along with uniquely customizable restrictions on each card. The cards use 256-bit encryption technology to protect sensitive information.

With U.S. Bank Spend Management, business owners can enroll in a modern small business credit card system that gives them the flexibility they’ve been looking for. Owners can customize their company policies and enforce them throughout their entire business spend process.

Whether it be setting daily spending limits or customizing the days in which cards are active, business owners have the unique ability to mobilize their business spend processes in a more versatile way anywhere, anytime.