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How to Decide Whether You Need a Business Debit or Credit Card

There are many benefits of owning your own business, but there are also disadvantages. One of the biggest is that you’ll need to manage your own finances. Sure, you can hire someone to handle your bookkeeping. But if you’re a startup or want to cut costs, tackling part of your company’s finances might be the best course.

While it might sound daunting, keeping track of your business’s funds doesn’t have to be a challenge if you have the right tools. More specifically, you need to have the right payment card. Determining whether your business needs a debit card or a credit card is one of the first tasks you should undertake when managing your finances.

In this article, we break down the differences between a business debit card and a business credit card. This will help you decide which payment method is right for your company.

Business Debit Card

The purchases you make with a business debit card are taken from your business’s checking account. This has pros and cons.

Pro: Helps You Stay On Budget

Unlike credit cards, which give you access to a line of credit, with a business debit card, you’re spending your own funds. This makes it difficult to overspend, especially if you have overdraft protection. If you don’t have the money in your account, your card will be declined. It’s as simple as that.

Depending on your security settings, there might still be instances where you could accidentally overdraw your account. But even if you’re charged an overdraft fee, you won’t be charged interest as you would with a business credit card.

Con: Won’t Help You Build Credit

While a business debit card can keep you on budget, it won’t help you build credit or improve your credit score. Chances are, for your business to grow, you’ll eventually need a loan or two. Unfortunately, that won’t be easy to qualify for if your business doesn’t have a good credit score. Relying solely on a debit card means you’ll have to find other ways to build your business’s credit.

Pro: Makes It Easier to Get Approved

To be approved for a credit card, you usually have to pass a credit check and provide proof of income. This might be difficult depending on what stage your business is in. For example, if you’re a startup, your credit score might be nonexistent.

In contrast, you’re typically offered a business debit card when you open a business checking count. Regardless of your credit score, you’ll have an easier time getting approved for a business debit card than a credit card.

Con: Is Not As Secure

According to the Federal Trade Commission (FTC), identity theft is on the rise. In fact, numbers doubled from 2019 to 2021, with nearly 1.4 million U.S. citizens reporting a theft.

It’s no secret that credit cards offer more security than debit cards. After all, if your credit card is compromised, you simply report it stolen, dispute any charges, and wait to be sent a new card. On the other hand, if your debit card is stolen, any charges are automatically deducted from your account. That means your funds are more at risk with a business debit card than a business credit card.

Business Credit Card

A business credit card offers a line of credit, so you can borrow money to make purchases. This has its own pros and cons.

Pro: Offers More Convenience

Having a business credit card makes it easier to finance purchases. Instead of waiting for a client check to clear, for example, you can use a credit card to manage your cash flow.

Depending on your financial situation, you can pay the balance off in full each month or carry a balance and pay the interest. While you don’t want to amass too much interest, credit cards provide a grace period that could benefit your company’s wallet.

Con: Charges Additional Fees and Interest

Business credit cards usually come with more fees than business debit cards. For example, some credit cards charge annual fees, while others will charge a fee for late or returned payments.

Of course, by doing your research, you can likely find a credit card company with fewer fees. Unfortunately, that won’t help when it comes to interest. If you don’t pay your bill in full each month, you’ll start racking up interest. The more interest you owe, the more difficult it will become to pay your bill.

Pro: Protects Against Fraud

One of the benefits of credit cards is they offer more security than debit cards, especially when it comes to fraud. Even if a thief gains access to your credit card information, they won’t be stealing your money. Rather, they’ll essentially be stealing money from the credit card company.

This should alleviate some stress because you’ll still have your own funds in your bank account. Plus, once fraud is reported, credit card companies usually move quickly to resolve the issue.

Con: Makes It Easier to Overspend

One of the biggest benefits of using a business credit card is also one of the biggest drawbacks — the freedom to spend. The truth is, it’s all too easy to pile up debt using a credit card. According to 2020 Experian data, Americans have over $756 billion in outstanding credit card debt.

Because you’re borrowing money instead of using your own, you might spend more than you can actually afford. Once you put major equipment purchases on a credit card or use your card to make payroll, it can become a habit. If you want your business to survive, this isn’t a habit you can indulge for very long.

Keeping the pros and cons of business debit cards and credit cards in mind, you’ll be able to make an informed decision. Before deciding which payment option is right for you, take a look at your company goals.

If building credit is important, you might want to opt for a business credit card. If you need a way to stay on budget, a business debit card might be the best payment choice. Or — provided you have the self-discipline to keep spending in check — you can meet more of your financial needs by getting both.

Abubakar is a writer and digital marketing expert. Who has founded multiple blogs and successful businesses in the fields of digital marketing, software development. A full-service digital media agency that partners with clients to boost their business outcomes.