Business credit cards vs. debit cards: when to use each of them

A business credit card offers a line of credit to make purchases, which can accrue interest if you don’t pay off the balance, whereas a business debit card draws funds directly from your company's bank account with no credit involved.

In this article, we’ll outline the similarities and differences between business credit cards and debit cards so that you know what to expect with each of these payment methods.

Types of business credit cards

There are a few different types of credit cards: namely, unsecured credit cards, secured credit cards, and corporate cards. In contrast, debit cards refer to one type of card that’s attached to your bank account. Here’s a quick overview of each type of business credit card:

• Unsecured business credit cards: When it comes to credit cards, we usually think of unsecured business cards. These are the traditional credit cards that come with a maximum credit limit per billing cycle and must be paid off each month to avoid racking up interest. You usually need a good personal credit score to qualify.
• Secured credit cards: Secured credit cards are an option for those who lack credit history or have a bad credit score. With these cards, you pay a security deposit which becomes your credit limit. Since you fund the credit line yourself, there’s no credit score requirement, and no risk of falling into debt. Secured cards are a good way to build up credit until you can qualify for a regular credit card.
• Corporate cards: Corporate cards are a type of business card that you must pay off in full every month. For that reason, it’s impossible to accrue interest or fall into debt. These cards come with advanced expense management features and can be used as employee cards. To qualify, you’ll need an EIN number and a certain amount of business revenue.

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What are the benefits of using a business debit or business credit card?

Both business credit and debit cards offer benefits like convenience, integrations with financial tools, security features, and easier expense management. Here's a closer look at how these two types of cards are alike and how they can serve your business needs.

Both are a convenient way to pay

Business credit cards and debit cards are both convenient ways to finance your business expenses. They allow you to easily track your purchases via your online banking and statement balances, and can often be used either physically or virtually.

They’re a quicker, more efficient way of handling payments compared to traditional methods like checks or cash, and they can also be used for international payments. Just about every retailer accepts credit and debit cards, making them an easy choice for financing business purchases.

They can integrate with accounting systems

Both business credit cards and debit cards can be easily integrated with bookkeeping and accounting software. These integrations can simplify your expense tracking, making it easier to categorize and reconcile business expenses.

These integrations can also automatically generate expense reports. When your financial data is synced with your accounting software, you can easily see your financial data and budget more effectively.

They come with enhanced security features

Business credit cards and debit cards come with advanced security features. These include fraud protection, which protects you from unauthorized transactions, and secure chip technology that keeps each transaction safe.

Moreover, both card types often include extra security measures such as real-time alerts and the ability to lock the card if you lose it. These features offer peace of mind, letting you know that your finances have an added layer of protection.

They help separate your business and personal finances

Using a business credit or debit card instead of a personal card lets you separate your business and personal finances. This distinction keeps your bookkeeping simple and ensures you’re compliant come tax time.

Using these cards exclusively for business expenses makes it easy to track and manage your manage your cash flow. It also helps you build a business credit score, which is important if you’re a small business owner looking to access loans in the future.

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What is the difference between a business debit card and a business credit card?

Business credit cards and debit cards also have some differences that can affect your business's financial strategy. These differences range from how transactions are handled to their fees, rewards, and credit-building potential. Let’s explore each of these points in more detail.

Borrowing vs. immediate payment

Business credit cards allow you to purchase on credit, offering a grace period before repayment is required. If you pay your card balance in full by the due date, you won’t be subjected to any interest charges.

In comparison, debit cards directly fund payments from your business checking account. This immediate deduction means there's no borrowing or interest rates, but it also means you need to have enough funds available in your account to avoid overdraft fees.

Different fee structures

Business credit cards often come with a range of fees, including annual fees, late payment fees, and fees for foreign transactions. Some cards also charge for balance transfers and cash advances, which can add up to quite a significant amount.

Business debit cards typically have fewer fees. Common fees may include monthly maintenance fees, ATM withdrawal fees, and in some cases, transaction fees if you exceed the maximum number allowed per month. These fees tend to be lower and less complex than those of credit cards.

Building business credit

Business credit cards offer an opportunity to build and improve your business credit history. As long as you use them responsibly by making timely payments, you’ll improve your business’s creditworthiness over time.

A good business credit score is crucial for accessing business loans and other forms of credit. In contrast, business debit cards don’t contribute to building credit, since they don’t involve borrowing or credit reporting, limiting their impact on your business's credit profile.

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Rewards and perks

There are many types of credit cards, all with different rewards programs. Some offer incentives like travel miles, cashback, or points for purchases. The advantages of these rewards can be great for your company, lowering costs and providing rewards that can be reinvested or used for employee incentives.

In contrast, business debit cards usually lack these rewards programs. While they offer simple and direct spending, they miss out on the additional perks that come with credit card rewards, which can be a strategic asset for maximizing your spending efficiency.

Is debit or credit better for businesses?

Both business credit cards and debit cards are valuable financial tools for any business. A business credit card is ideal for building business credit, accessing rewards like cashback or travel miles, and providing a flexible credit line for financing purchases. These features can be particularly beneficial if your business is looking to expand or has irregular income patterns.

On the other hand, a business debit card offers direct access to funds without the risk of accruing debt or interest, making it a reliable option to have on hand. Of course, a debit card is attached to your business bank account, which is what you should use to pay off your credit card. For some business cards, like corporate cards, you’ll also need to have a certain amount of money in your business checking account to qualify. Ultimately, it’s good to have both types of cards to manage your business finances effectively.

Consider a Ramp corporate card

Ramp's corporate cards are a fee-free alternative to traditional business credit cards. Like most credit cards, you can use Ramp at any retailer while building your business credit score. But unlike traditional cards, we have no credit check requirement and no annual fees. All you need to qualify is a registered business and $25,000 in a dedicated business banking account.

Our cards offer an average net savings of 5% and come with and built-in expense management software. We also simplify the process of setting up an employee card program with unlimited free physical and virtual business cards and the ability to set custom spending controls. You can upload your expense policy to limit which purchases are authorized, making it impossible to spend out of policy and eliminating the need for reimbursements.

Explore our interactive product demo to learn more about how Ramp can streamline your business finances.