Are personal credit ratings used when getting a business credit card?

There is a common belief amongst some borrowers that a business credit rating and a personal credit rating are somehow separate. This can be the case with large companies but is rarely true for small, solo entrepreneurs.

A business credit card is essentially an open loan secured on the underlying business. A personal credit card is also an open loan, but this time it is secured on the person themselves. When dealing with a small business, particularly a sole trader who does not employ more than five or ten people, the credit worthiness of the person who owns the business is usually the same as the credit worthiness of the business.

In fact it is still the case that a business credit card is more likely to be refused than a personal credit card for the same person. Business credit cards tend to be a more specialised area of lending and so there are fewer providers.

If a business owner is accepted for a business credit card, they will find the card is secured against their own credit rather than against their business, even if it is used exclusively for their business where it forms a flexible and welcome extra source of credit. In short, the credit card should be seen as a business tool rather than a way of getting around poor credit ratings.

Business credit cards should also not be used for personal spending. This is for practical reasons. Personal and business expenditures should be kept separate because the expenses of the business will be harder to calculate if they are not segregated accounts. Even if a small businessman does not feel inclined to apply a specialised business credit card, he or she should still carry a second standard credit card for the business so that the accounts can be kept separate.

Another reason why business credit cards should not be used for personal spending is because of the tax implications. If a credit card is only used for business purposes, it will be a clear-cut business expense for tax purposes. If the account includes even a small amount of personal expenditures, this can become far more complex.

If a business owner is likely to have problems finding a credit card, whether business or personal, then some attention should be paid to repairing their credit rating as it will be used by both business lenders and suppliers.