How to Choose a Business Debit or Credit Card

We’ve all been there when making a personal purchase. We reach into our wallets, watching the cashier ring up our items, fingers poised. Debit or credit?

This common scenario applies to many business owners when they’re in the checkout line, too. If they choose to pay that vendor invoice today, it might come close to draining their business account. So, once again … debit or credit?

As with most things in life, there are pros and cons to using either type of card for business purchases. The first step to making the right choice is understanding the difference between them. Then you can choose based on the unique needs of your business and financial situation. Let your business priorities guide you in making your decision.

For Spending What You Have

A company debit card will allow your business to spend only the money it has on hand. Just like how you would want a personal debit card to better track your spending and limit it to only what is in your account, you would view a business debit card in the same way. You would choose the business debit option if you want your spending linked directly to your bank account, so you are more likely to stay on budget.

Many debit cards offer no-fee accounts and require no minimum balances. Banks might charge transaction fees for ATM cash withdrawals and overdraft fees, but you won’t pay interest because you aren’t borrowing any money. Some debit cards now support mobile payment platforms such as Apple Pay and Google Pay, making them even more versatile.

Debit cards usually can’t compete with credit card rewards, as you’ll see below. Still, some debit cards now offer helpful features such as an automatic dollar round-up deposited straight into your savings account. If you want to control your business spending, a business debit card might be the solution. As you evaluate your options, remember that you may be paying more for credit card rewards than you’re getting.

For Spending More Than You Have

There are three primary ways your business can spend more than it has in the bank. The most common methods are business credit cards, lines of credit, and loans.

A business credit card allows you to spend up to the credit limit. If you’re able to pay off the balance monthly, such cards could be a great way to build credit for your business. Of course, if you carry a balance on the card, you’ll incur often-hefty interest payments on top of what you spend.

Obtaining a business line of credit has its advantages, too. Instead of a lump sum loan or credit limit, your business can access funds as needed. You pay back only what you use rather than the line of the credit limit.

Small business loans may be the way to finance startup costs or pay for a needed acquisition of inventory. Some offer interest rates far below those charged by credit card companies. You could even use a small business loan to open an account and access those funds with a debit card.

Credit cards frequently charge annual fees in addition to interest. Lines of credit will charge interest on balances. Loans may have processing fees and will charge interest over the loan term. Sometimes, a business needs more money than it has in the bank. The good news is that you have options. Just remember to consider all the costs of using someone else’s money.

For Earning Rewards for Spending and Frequent Use

Business credit cards, just like personal ones, tempt users with rewards. At the end of the day, card users are paying for those rewards via interest and fees. They also pay retailer markups to cover the cost of these rewards.

Businesses can get statement credits for new cardholders and points for travel and business expenses. These all sound great, but make sure they’re really a good deal for your business. Those statement credits tend to benefit businesses that can spend a lot right away and pay it back. For those that cannot … not so much.

For example, some cards offer a $750 statement credit or cash bonus, which sounds great. However, qualifying for that bonus typically requires the cardholder to spend $7,500 in the first three months after the card is issued. This is likely to work only for businesses that can count on quick cash flow to pay off a sizable balance.

If your business requires a lot of travel, chasing after travel rewards can look very attractive. So can points toward purchases for office supplies, especially when you’re getting started. Just remember that if you can’t pay credit card balances quickly, you’ll be paying a lot of interest. You don’t want to end up paying more in interest than you get back in rewards.

For Fraud Security and Protection

There are two ways credit cards might trump debit cards when it comes to security and protection. For one, credit cards have long offered chip and PIN technology for greater security than debit cards. Additionally, if you lose a credit card, you can often stop unauthorized purchases before they hit your card.

But debit cards are catching up. Most now incorporate chip technology. Many also link to apps that allow you to immediately disable the card if you lose it. Consumer cards now provide protection against having to pay for fraudulent charges. However, those protections don’t always apply to business cards, so it’s important to read the fine print.

You’ll want to avoid using your personal credit card for business purchases. You probably formed a corporation or LLC to limit your personal liability. Using personal credit for your business could cause problems with disgruntled customers or clients seeking to sue. Protecting all your business assets is important to your long-term success. So is protecting your personal liability. Just make sure you know whether your card has you covered or not.

For Different Kinds of Businesses

The type of business you operate is a key factor to consider in the debit-versus-credit debate. Perhaps you own a cash-only business. Having a debit card might be an easy way to pay for things without keeping a wad of cash on hand.

If your business requires keeping a substantial inventory, you might need a credit card or other loan to keep the shelves stocked. If you’re a service provider, a debit card might be all you need. Having employees means meeting payroll on schedule. It might help to have a credit card for business purchases when the bank account is running low.

Perhaps you’re part of the gig economy. If the only person you need to pay is you, resist relying on credit. If you can’t pay the balance every month, the interest might become problematic, especially over time.

Choose the Solution That’s Right for Your Business

Of course, you don’t have to choose only debit or credit for your business. You can combine them both to keep your business running smoothly.

Debit cards provide built-in spending control. But maybe you need more money from time to time. If so, having a credit card or another credit source could come in handy — provided you use it responsibly.

If your business is profitable, either can work. You can build savings automatically with some debit cards. Or if you want to amass some air miles, the right credit card might be just the ticket. Choose wisely, and either — or both — can work to your advantage.