Business Charge Cards vs. Credit Cards Made Easy

Business charge cards and business credit cards are similar in that the card holder can charge purchases whenever they want and pay the card balance monthly. Business credit cards are typically easier to get approved for because they normally have spending limits, and business charge cards don’t have interest rates, which is one of the reasons why business owners prefer charge cards to credit cards. 

If you’re curious about which one is right for your company, or just want to know what makes them different and similar, we’re here to help.  

The main differences between business charge and credit cards 

• Business credit cards are a type of debt financing where the borrower uses money from a pre-approved amount and makes regular payments. When a balance is outstanding, the card holder will owe interest on top of the payments. Business credit cards share similarities with a small business loan in that there are interest payments on the balance and the payments are spread out over a period of time. 

• Business charge cards allow the borrower to charge any amount to the card, as many do not have spending limits, on an as-needed basis. The borrower then pays the entire amount back before or at the end of the billing cycle. There are no interest payments because there is no balance due (but there are other fees and costs like application, renewal, and late payment fees), and they come with higher risk for the lender, so they are typically harder to get approved for. 

	Business Credit Cards	Business Charge Cards
Interest fees	Yes	No
Fixed fees and costs	Yes	Yes
Set spending limit	Typically, yes	Typically, no
Can have perks and rewards	Yes	Yes
Ease of getting approved	Easy	Hard
Business credit score required for approval	Poor to excellent	Excellent
May require collateral	Yes	Yes

To get approved for a business charge card, your company will need to be considered creditworthy, meaning there is a low risk of default. The lender will want to see financial records, may require you to have a business checking account with them or ask for a history of your account with another bank or lender, and you’re going to need strong cash flow and reserves.   

To get approved for a business credit card you don’t have to be as creditworthy, meaning you can have a lower business credit score, smaller cash reserves, and you don’t need to have been in business as long to show a strong financial history. There are normally set spending limits. While you may have a cap on what you can spend and be required to make interest payments on a balance due, it is considered revolving credit so it can have a positive or negative impact on your credit utilization ratio, making it easier to get approved for other types of financing and improve your business credit score.   

Both charge and credit cards come with perks that can include cash back, travel points, and discounts at vendors. Both can come with annual fees, application fees, and renewal fees, and both may require collateral and/or a personal guarantee, but personal guarantees are more common on business credit cards as business charge cards rely on the company’s financial standing and history.   

Here are a few situations where one will be better than the other, assuming you can get approved for both. 

Situations to pick one over the other 

Different situations call for different types of financing, and this applies to business charge and business credit cards. Here’s a few times where both may seem like a good idea, but one may be better than the other. 

Credit utilization ratio protection 

When you’re going to be making a large purchase and need substantial funding like equipment financing loans for machinery, a business credit card will increase the amount of revolving credit you have available. If unused, your credit utilization ratio will appear better and this can help improve your chances of getting approved since your business credit score will be higher. 

If your score is already good and you need to protect it, a business charge card will let you make purchases without depleting revolving credit and keep your score strong.   

Keeping interest payments down 

Both types of cards carry fees that can include application fees and late payment fees, but business charge cards do not have interest fees on top of the late payment fees. This helps keep expenses down in situations where you don’t clear the balance in a billing cycle.   

Recessions and predictable cash flow issues 

If a downturn is expected and cash flow is going to be tight, business credit cards are better than business charge cards because the expense can be distributed over a longer period of time compared to requiring paid in full at the end of the billing cycle.  

Large purchases 

Business charge cards are better for large purchases where you’ll be able to pay the amount in full as there is less chance of having a spending limit when compared to a standard business credit card. Because you can pay the amount in full, no interest fees will apply and this saves you money.   

Pro-tip: Business charge cards are better than a business loan for time-sensitive purchases as the cash is available on demand versus needing to fill out an application and wait for an approval. 

Both charge and credit cards are good for business purchases, the difference comes down to protecting or growing your business credit score through the way they impact or do not impact your credit utilization ratio, if you’ll have the cash flow on hand to pay the balance before the end of the billing cycle, and how creditworthy your company is. 

SmallBusinessLoans does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.