Business Cards

Business Debit Cards vs Credit Cards: Which Is Right for Your Business?

Business debit cards are simpler and provide more control, while credit cards have late fees, interest rates, and expose you to more risks. Find out which is better for your business.

Credit or debit? When it comes to paying for business expenses, you have options. Do you want to earn those sweet airline miles or protect your business from overspending? What about late fees, overdraft protection, and lack of spend control? 

Bill Lumberg meme: If you could just tell me which is better, that would be great.

Sadly, there is no easy answer. Both business debit and credit cards come with pros and cons. However, small businesses in particular are often better served by debit. Here's why. 

What is a business debit card?

A business debit card is a payment card with a Visa or Mastercard logo that spends funds directly from your business checking account (without any line of credit). For prepaid business debit cards, money is loaded onto the card from your business checking account before it gets spent by employees. This prevents overspending as there are limited funds available on the card. 

Of course, some business debit cards are not prepaid. Typically, these cards are secured with a cash deposit, which sets the maximum amount that can be charged at any given time, and this balance is topped up with a funds draw. Secured cards like these report to credit agencies and can be a good way to build business credit. For all business debit cards, there are no late fees, no interest, and no need for credit checks or qualifications. Just like your personal debit card, it can be processed as a credit card that doesn't require a PIN. 

What is a business credit card?

A business credit card leverages a line of credit for your business. Employees use credit cards that all share the same line of credit, then the business then off the charges made by employees. Don't pay off the balance? Your business is at risk of being charged high interest rates and late fees. 

Most credit cards require a credit check, which can be a challenge for small businesses just getting started, especially since many don’t qualify for a line of credit. Getting started with a business credit card can take significantly longer than a business debit card due to the credit check and application process. 

Business debit card vs credit card: pros and cons 

While the differences might sound simple, things get a bit more complicated when you get into the weeds. Here's a look at pros and cons of each type of business card. 

Business credit card pros 

Business credit cards are conveniently accepted everywhere Visa or Mastercard are, just like a personal credit card. Here are a few other perks to using a credit card for business expenses: 

  • Buy now, pay later by splitting up costs over a few months. 
  • Earn business rewards. 
  • No PIN required. 
  • Some business credit cards offer other perks, like purchase protection, rental car insurance, etc.

Business credit card cons 

Despite the ubiquitousness of credit cards, there are some definite cons when it comes to using them for your business—especially if you have a small business. 

  • Requires a business credit check, which can be an issue for businesses without an established credit history. 
  • Overspending risk, especially if you have a higher limit. 
  • Mistakes (like late payments) can impact your business credit score. 
  • Fees add up: late fees, annual fees, fees because you forgot to jump on your left foot three times before submitting payments; you get the idea. 
  • Some cards charge a fee for every card issued, which adds up.  
  • Most charge foreign transaction fees. 
  • May require a minimum monthly spend, which can be prohibitive for smaller businesses. 

Financial institutions don't offer credit cards out of the goodness of their hearts—they're offering a product, and they expect to get paid. That nickel-and-diming can have a huge impact on smaller businesses. 

Business credit cards pros and cons

Business debit card pros 

Another option to pay for all those business expenses is a business debit card. There are a lot of pros to this option, including: 

  • No bills to pay at the end of the month. 
  • No interest rates, late fees, transaction fees, etc. 
  • No credit check or credit history required. 
  • Easily generate cards for employees at no cost (At least with ClearSpend's Go Card, we can't speak for everyone else.
  • Accepted at most stores (especially if it’s a Visa), including gas stations, airlines, grocery stores, or the restaurant around the corner from your office. (Happy hour anyone?) 
  • Many offer spend control limits, so you can control who spends what and where they spend it. 
  • No minimum spending requirements. 

Business debit card cons 

You might be wondering why every business doesn't just use debit cards? Us, too! Seriously, though, they aren't the best fit in all situations. Here are a few cons to keep in mind: 

  • Can't put it on credit and pay later (however, you can use one of those buy now, pay later services like Klarna or Afterpay if it’s available at checkout). 
  • You won't earn business rewards. 
Business debit cards pros and cons

Why are debit cards actually favorable to most small businesses?

There's no one-size-fits-all solution when it comes to choosing how to pay for business expenses. Larger companies, for example, may prefer the perks and convenience of a credit card—and find the drawbacks don't have a meaningful impact. 

Small businesses, however, often find that debit cards fit their needs better. Some small businesses may not qualify for a credit card, while a debit card is available to any business with a bank account. 

Debit cards are also much more convenient. Since the card is funded through your bank account, the money comes right out. There is no need to pay a credit card bill, make sure the checkbook is balanced, or withdraw cash at the bank. 

In addition, debit cards offer small businesses more control over their expenses. Debit card providers can't randomly change their limits like many credit card providers do. Plus, they can’t randomly pull money from their bank account when the bill is overdue (since there is no bill).

Using a debit card is also a great way to stay on budget. Using a credit card can easily put you over your budget (and maybe even in debt), especially when you factor in annual fees, international transaction fees, and interest. 

How to get business debit cards through ClearSpend

Finding the right business debit card for your business shouldn't be a hassle. With ClearSpend, it doesn't have to be. With ClearSpend business debit cards, you can generate as many debit cards as you need, limit spending amounts, and restrict each card to specific spending categories. 

Need 5 cards for the marketing team's Vegas conference, but don't want to bankroll visits to the slot machine? We've got you covered. Need 100 cards so every employee can gas up the company car? No problem. And, unlike credit cards, you won't have to remember to pay the bill every month. 

More like this