Small-business credit card vs. corporate credit card: Which is right for your business?
If you're a small-business owner, chances are that you have one or more business credit cards. But as your business grows, it may be a good idea to consider using a corporate card instead of a small-business card.
Here's what you should know about both types of cards, as well as when your company should make the switch.
What is a corporate credit card?
A corporate credit card is a card that is tied to a corporate account. Generally, corporate accounts are only available to businesses with annual revenue of $4 million or more. And generally, the company (not the owner or employees) is responsible for paying the bill, so approval of the account is based on the company's financial situation. Corporate cards are particularly useful for companies that process many transactions and have many people authorized to spend on behalf of the company.
Related reading: Best business credit cards
Business credit cards vs. corporate credit cards
The primary difference between corporate cards and small-business cards is who is liable for debt and fees. With small-business cards, the primary cardholder is personally liable. On corporate cards, the company is liable.
As your company grows and you have more employees authorized to spend on behalf of your company, using corporate cards on a corporate account may be a smarter way to spend than issuing authorized-user cards or employee cards on a small-business card that's in your name.
A secondary difference that may also matter to you, since you're reading The Points Guy, is rewards. On small-business cards, the primary cardholder earns the rewards. Conversely, on corporate cards, the company keeps the rewards most of the time — and usually, the earning rates aren't as lucrative as you'll find on many small-business cards.
If you're in a situation where your employees are currently allowed to put business expenses on their personal cards and then submit their business expenses for reimbursement, some employees may see the switch to a corporate card where the company reaps the rewards as a significant loss of benefits.
Related reading: The best cards for each business credit card category
Pros and cons of corporate cards
If you're considering switching your business to a corporate account and issuing corporate cards to employees for spending on behalf of your business, here are some of the primary benefits and disadvantages — for the company, for you and your employees:
Benefits of corporate cards
- No personal liability for company owner or employees (unless the corporate card is set up as an individual liability account, which is uncommon).
- Employees don't need to wait to be reimbursed.
- Easier reporting and expense tracking.
- Ability to set spending limits for each employee card and often even limit expenses to select categories.
- The company earns rewards instead of employees (although, in some cases, the company could choose to let employees earn rewards on their spending).
Disadvantages of corporate cards
- Lower rewards-earning potential than on comparable small-business cards.
- Higher additional-cardholder fees than on comparable small-business cards.
- Only available to businesses with revenue in the millions and robust financials.
- Employees generally won't earn rewards on their spending.
Related reading: How to know it's time to switch to a corporate credit card
Switching from a small-business credit card to a corporate credit card
If your business earns millions of dollars in revenue each year, processes a high volume of transactions, or wants more control over employee spending, issuing corporate cards to employees may be the right move.
There are downsides, however, as you'll likely see higher fees per employee card, and you may have less earning potential when it comes to rewards. But corporate cards can be a good option, especially if you're looking to move liability from the business owner and individual employees to the company.
Bottom line
Suppose you're a business owner and your firm is big enough to qualify for a corporate credit card. In that case, it may be worth exploring — if for no other reason, you'll be able to better protect yourself from liability. That can be a strong incentive on its own.
But you may also be looking for a more robust way to track your employees' spending. When you have dozens or even hundreds of employees, the tools business credit cards offer may not be appropriate for your needs anymore.
Additional reporting by Ryan Wilcox.