Thinking of getting a business credit or debit card as part of your business expense management plan? Confused by all the choices you have as a small-business owner? You’re in the right place. This guide breaks down the difference among all the types of cards you see: credit, debit, prepaid, ghost, virtual, procurement, purchasing, and p-cards.

All of these cards fall into two major categories: credit and debit. Business credit cards, like personal credit cards, extend your business a line of credit you can make purchases with. If you don’t pay in full each month, you’ll pay interest on your purchases. Debit cards, on the other hand, function like plastic checks, pulling money straight from your bank account, with no interest
charges.

There’s more to the story than that, but the credit vs. debit principle is the most important distinction. While we won’t make any promises, we hope by the end you’ll have an idea of which expense management solution is best for your startup or small business.

Quick Overview: Business Credit Cards v. the Alternatives

If you don’t have much time on your hands, this chart offers a high-level overview of the differences between small business credit cards, business debit cards, and the many other types of cards you can use for expense management.

Card Type Credit Check Required? Credit Affected? Interest Charged? Physical Card? Best Benefit Biggest Drawback
Business Credit Card Yes Yes Yes Yes Can serve as a business line of credit to help with cash flow. Can have rewards Few protections / guarantees can lead to debt
Business Debit Card No No No Yes No risk of unwanted debt and bad credit Rewards programs less common
Business Prepaid Card No No No Yes Tight spending control Inconvenient to reload
Ghost Card Depends* Depends Depends No High security Not accepted everywhere
Virtual Card Depends Depends Depends No High security Not accepted everywhere
Procurement Card Depends Depends No Depends Improves accounting efficiency, cash flow, and fraud prevention Significant setup time required
Purchasing Card Depends Depends No Depends Improves accounting efficiency, cash flow, and fraud prevention Significant setup time required
P-Card Depends Depends No Depends Improves accounting efficiency, cash flow, and fraud prevention Significant setup time required

* This depends on whether the card is debit or credit.

“Prepaid Credit Cards” and Other Misnomers

One last note before we dive in: we hear a lot of questions about “prepaid credit cards” and “prepaid debit cards.” These are misnomers – technically, no such products exist. But here’s what is likely going on:

  • Prepaid credit cards” may be a misnomer for secured credit cards, which require cardholders to maintain a certain amount of money in an account attached to the card. This money “secures” the credit line, meaning the card issuer can seize that money if you’re unable to pay your bill. These are distinctly different from debit cards in that they can help you build your credit. In fact, they may be the best credit card for small-business owners with poor credit.
  • Prepaid debit cards” may refer to plain old prepaid cards, which operate like gift cards that can be used anywhere (more on that below). While they come with some limitations, they may be handy as fuel cards or employee expense cards.

Ready for more details about expense management solutions? Keep reading!

Business Credit Cards

business credit cardsBusiness credit cards work by connecting the cardholder with a line of credit that can be used to make purchases. As with consumer credit cards, you can make purchases at any vendor that accepts your card’s brand (Visa, Mastercard, Discover, American Express, etc.).

Business owners must apply and be approved for a business credit card. One of the most important qualifying factors is your credit score. Small-business owners may have to offer a personal guarantee, so your personal credit score may affect your ability to secure business credit, as well as the interest rates you pay for that credit.
(Note: If you plan to use these as employee expense cards, they won’t hurt your employees’ credit – but your employees’ negative actions can hurt yours.)

Who Uses Business Credit Cards?

So who’s using business credit cards these days? According to the 2017 Federal Reserve Bank Small Business Credit Survey

  • 20% of small businesses (one to 499 employees) applied for a business credit card in the last year (many rely on personal credit)
  • 60% of those who applied used their credit cards regularly
  • 44% of those who didn’t apply (but already had a card) used a credit card regularly
  • 13% of those who didn’t apply thought their credit was too weak to qualify for a card


Keep in mind, though, that those numbers are for established small businesses. Fewer than 7% of new businesses rely on business credit cards for startup capital – and that’s probably a good thing. As we’ll discuss later, credit cards can be a quick source of funding, but those funds come at a high cost.

Another important thing to note: credit cards are the second most popular source of funding for small businesses, but only 27% of business owners reported using them. In contrast, 87% of business owners reported seeking bank loans. See more in this graph:

Source

Finally, some insight into why small businesses seek financing: most do so to expand their business, followed by those who need the money to cover operating expenses.

Source

Does Business Credit Card Activity Show up on Personal Credit Reports?

This is an important consideration. While it’s often essential to take on debt to grow a business, that kind of behavior will hurt your personal credit score. And some business credit card issuers do report account activity to personal credit bureaus. See this excellent breakdown of practices by card issuer for more information.

As a general rule of thumb, always ask your issuer whether your account activity will be reported to personal credit bureaus (and therefore affect your personal credit score).

Advantages of Business Credit Cards

Despite their potential impact on your personal credit, the best business credit cards are a powerful expense management tool for many small-business owners. Specifically, they offer these advantages:

  • Convenience: Credit cards are widely accepted, meaning you can use a single card to pay bills, purchase equipment and supplies, cover travel expenses, make incidental purchases, and even pay vendors.
  • Flexibility: Unlike purchasing cards, which are often restricted to specific vendor types, credit cards can be used virtually anywhere.
  • Access to credit: If your business is going through a “rough patch” or having cash flow problems, credit cards let you spend even when you don’t have money in the bank. As long as you’re able to pay the bills eventually, this can be a lifesaver.
  • Rewards: Many business credit cards let you earn rewards points or miles as you spend. Using the right card can translate to discounts on flights, fuel, and more.

Disadvantages of Business Credit Cards

Business credit cards offer a convenient expense management solution. But they aren’t perfect. Before you apply, be sure to weigh these potential drawbacks as well:

  • Lack of spending control: Because of their flexibility, business credit cards are also easy to abuse (unlike debit and prepaid cards, which offer much greater spending control). While you may not worry about yourself, this can become a problem if you’re looking for employee expense cards.
  • Ease of incurring debt: If an employee does misuse a card (which may be considered fraud), your business could quickly find itself in debt, which can get expensive.
  • Lack of protections: The above is true because even the best business credit cards aren’t subject to the same protections as consumer credit cards. In addition to unannounced rate hikes, cardholders aren’t guaranteed fraud protection (though some card issuers have generous protection policies).
  • Potentially high and variable interest rates: Credit card interest rates are typically much higher than what you’d pay for a bank loan. And card issuers technically have the ability to adjust rates without much notice to cardholders. (See chart below.)

Source  |  Source

Business Debit Cards

Like consumer debit cards, business debit cards let you spend money that you have in a checking account. They’re essentially a more convenient way of paying cash, which is why you don’t have to pass a credit check to qualify for a business debit card.

Business Debit Cards v. Business Credit Cards

At the cash register, business debit cards and business credit cards function largely the same way. With debit, you may have to enter a PIN to complete a transaction, while a credit card purchase will likely require you to sign.

But on the back end, these expense management options come with significant differences:

  • Business debit cards cannot give you access to a line of credit. Put another way, debit cards only give you access to money you already have in your account, whereas credit cards enable you to borrow money from your card issuer and pay it back when you can (with interest).
  • Business debit cards do not charge interest. With debit, you are never borrowing money, so you never have to pay to use it. (If you pay your business credit card bill in full every month, you also won’t pay interest rates. But if you run a balance – that is, pay less than the full amount you owe – you will pay interest on that amount.)
  • Business debit cards do not affect your personal credit. They also don’t affect your business credit. That’s because they don’t involve using credit (i.e., borrowing money).

Card Features: Business Credit vs. Business Debit

Feature Business Credit Cards Business Debit Cards
Line of credit? Yes No
Interest on purchases? Yes No
Overdraft fees? No Yes
Flexibility? Yes Yes
Affect personal credit? Yes No
Rewards? Yes Rarely
Ability to incur debt? Yes No

Advantages of Business Debit Cards

Again, no card is right for every business owner. But as you consider your expense management options, you’ll want to weigh these advantages of business debit cards:

  • Convenience and flexibility: Like credit cards, the best business debit cards (i.e., those by widely accepted issuers like Visa and Mastercard) work nearly everywhere, making them convenient.
  • Spending control: Because spending is limited to the amount of money in your account, business debit cards are great for preventing overspending. This is particularly helpful if you need multiple employee expense cards: it prevents a rogue employee from spending more than you’ve got.
  • No need to apply or qualify: Unlike credit cards, business owners don’t need to qualify for debit cards. That means you can use them even if you have poor credit.
  • No interest: Because you’re only using your own money, you don’t get charged to access it.

The above criteria apply to virtually all business debit cards. Some come with additional benefits, such as issuer-sponsored rewards (like travel assistance), vendor type controls (more on that when we get to purchasing cards), and even spend limits per card user.

Disadvantages of Business Debit Cards

While business debit cards are a great solution for some business owners (including those with a poor or limited credit history), they also have a few shortcomings:

  • Limited fraud prevention: Like business credit cards, business debit cards don’t enjoy the same protections as their consumer counterparts. But that’s only at the federal level – i.e., card issuers aren’t required to offer protection. But some issuers (Visa, Mastercard, American Express, etc.) might anyway. Be sure to read the fine print as you compare cards.
  • No access to credit: You can’t get into debt with a business debit card. On the other hand, you can’t access additional capital if you need it. But you may not need it. An employee travel and expense card, for example, likely won’t need a credit line, whereas you may want one for a card that’s only available to you, the business owner.
  • Potential overdraft fees or declined purchases: Some business debit cards let you make purchases when there’s no money in your account – and charge overdraft fees for the privilege. You can opt out of this feature by talking to your bank.
  • Less access to rewards: We mentioned above that some business debit cards come with rewards, but business credit cards tend to offer more robust rewards (airline miles, points, cash back, etc.) and a greater variety. If rewards are important to you, you’ll probably find the best deals among business credit cards.
  • Account holds for certain types of purchases. As you may have noticed in using your personal debit card, certain types of debit purchases trigger “holds” on your account. This typically happens when the full amount you’re spending isn’t known when you swipe your card (e.g., at the gas station, at a restaurant, or at a hotel).

Business Prepaid Cards


Business prepaid cards are often confused with business debit cards and even credit cards. That’s because all three can be branded by the same providers (Mastercard, Visa, AmEx, etc.).

Branding aside, business prepaid cards operate very differently than their credit and debit counterparts. Chief differences include:

  • Business prepaid cards are not tied to a bank account. They function more like gift cards: you have to load a set amount of money onto a card and you can use only that amount of money. Unlike gift cards, though, prepaid cards can be used virtually anywhere.
  • Only preloaded money can be spent. Whereas business debit cards can access whatever funds are in the attached checking account and credit cards can tap into their associated line of credit, business prepaid cards are limited to the funds loaded onto the card. When that money is spent, you may be able to load more money onto the card, but if you don’t, the card is no longer usable.

Advantages of Business Prepaid Cards

While prepaid cards aren’t right for every business, they do have certain advantages, including these:

  • No risk of overdraft fees or debt: While it’s possible to be charged an overdraft fee with a business debit card and incur debt with a business credit card, business prepaid cards eliminate both possibilities. For this reason, they may be useful when you need to strictly limit an employee’s access to funds.
  • No effect on credit or need to qualify: Business prepaid cards are available to anyone. Further, spending with a prepaid card will not affect your business or personal credit.

Disadvantages of Business Prepaid Cards

While sometimes a useful expense management tool, business prepaid cards are fairly limited in what they can achieve. Before adopting this expense management solution for your business, consider these drawbacks:

  • Lack of protections: Business prepaid cards don’t offer the protections that credit and debit cards do. If a card is lost, for example, there’s not much you can do about it. Whoever finds it could spend the preloaded money.
  • Difficulty to reload: Some business prepaid cards are reloadable; others are not. While reloadable cards often offer several options for adding more funds, some of those may come with a fee. Other business prepaid cards require you to go to a physical bank location, which can be time-consuming. And if a card is not reloadable, you’ll have to buy a new one when its funds run out.
  • Difficulty of tracking across an organization: This can be a major pain point for a small business. While business prepaid cards often make sense for individual users, they can be hard to track at the organizational level. Specifically, it’s often difficult or impossible to see how much money is in each account, what purchases are being made, and what fees are being charged.
  • Fees: If you’re considering prepaid cards for your business, pay careful attention to fees. In some cases, prepaid cards charge fees for every transaction, reload fees, fees to take money from an ATM, and activation fees. These can add up fast, especially if you’re distributing prepaid cards for relatively small business expenses.

Possible Fees: Business Credit Cards v. Business Debit Cards v. Business Prepaid Cards

Here’s a summary of which types of fees are possible on various types of cards. NOTE: “Yes” on this chart means that fee may exist on that card type; specific fees vary on a card-by-card basis.

Type Activation Fee? Transaction Fee? Reload Fee? Overdraft Fee? ATM Withdrawal Fee? Interest on Purchases?
Business Credit Card No No N/A N/A N/A Yes
Business Debit Card No No N/A Yes No (within network) No
Business Prepaid Card Yes Yes Yes N/A Yes No

All in all, prepaid cards are rarely the best option for a business. The very idea of “prepaying” may make cash-flow-conscious business owners flinch – and with good reason. For many small businesses, the beauty of using cards is that they help improve cash flow rather than tie up funds before they’ve been spent.

Virtual Cards

Virtual cards (also sometimes called API cards, which we’ll explain in a minute) are more or less what they sound like: debit and credit cards with no physical presence. Business owners can use both virtual debit cards and virtual credit cards, depending on their needs.

A virtual credit card is connected to a line of credit (just as a plastic business credit card is), and can be used to make payments or order goods online. This might include paying a vendor or utility, or ordering supplies for your office space.

Virtual debit cards work much the same, except that they pull funds from a connected checking account (just as a normal business debit card does).

Advantages of Virtual Cards

Virtual cards offer several features that most physical cards do not:

  • Increased security: Virtual cards can’t be stolen because they’re not physical property. They increase security online by creating unique payment tokens for each transaction. This means that even if a criminal gets access to information for one transaction, that information will be useless for all future transactions.
  • Ease of creation: Virtual cards can be created and accessed almost instantly because there’s nothing physical involved. (Compare that to plastic cards, which have to go through the mail to get to you.)
  • The ability to choose an expiration date: Many virtual credit and debit cards let users set their own expiration date, which makes these cards handy for one-time purchases and projects of known duration.
  • The ability to set daily transaction limits: These limits help ensure that, no matter who is using the virtual card, it isn’t abused and its use won’t jeopardize the larger business finances.

Disadvantages of Virtual Cards

While small businesses may find virtual cards to be a valuable addition to their existing debit or credit products, they’re not practical 100% of a time. That’s because …

  • They can’t be used to make in-person purchases. As we mentioned above, virtual cards have no physical presence. That makes them great online and over the phone, but useless in the brick-and-mortar world.
  • They may not be used for purchases that might need to be returned or exchanged. In most cases, vendors require returns to be accompanied by the original purchasing card, which is impossible for most virtual cards.

Virtual Card APIs

If you’ve been investigating virtual cards, you may have heard of virtual card APIs, or even “API cards.” An API (application programming interface) is the connection between the payment processor (Visa, Mastercard, etc.) and your business. The API is the technology that lets you create and use a virtual card.

Businesses that need or want to create many unique debit cards can do so with virtual card APIs.

Here’s a diagram of how Visa’s virtual API works:
A diagram of Visa's virtual card API.

Source

Here is a step by step explanation of the above graphic. The below steps were taken and simplified from the above source.

  1. Buyer sends purchase order to you.
  2. You call the API to process payments.
  3. System configures account for and sends data to the acquirer for processing.
  4. A code is returned confirming your initial payment processing from step 4.
  5. A notification and or a file is sent to the supplier.
  6. The supplier uses the card that was sent to them.
  7. The payment is used to correspond the settlement with the payment.
  8. The system sends the data back to you via API.

How to Obtain a Virtual Card for Your Business

Many banks and card issuers currently have a virtual card option – if you’re interested in using virtual credit or debit cards, reach out to whatever institution issues your current card and ask about your options.

Ghost Cards

While they may sound scarier (or more fun, depending on your point of view) than virtual cards and API cards, ghost cards are actually the same product and they work in the same way. In case you’re skimming and jumped right to this section, here’s a quick summary of how to think about what ghost cards (aka virtual cards) can do.

Advantages of Ghost Cards

These handy, non-physical spending solutions…

  • Function with debit or credit: Whether you prefer working with debit or credit, you can find a ghost card to meet your needs. Just talk with your banker or card provider (Visa, Mastercard, etc.) about your options.
  • Increase security for online purchases: Ghost cards create unique transaction tokens for every purchase, which means they make fraud prevention much easier: even if a criminal manages to steal information for one transaction, it won’t work for any other transaction.
  • Expire according to your schedule: Unlike plastic credit or debit cards, which come with an expiration bank determined by the issuer, you can choose the expiration date for your ghost card. Any funds or credit lines attached to the card will no longer be accessible via the ghost card once the expiration date passes.
  • Enforce daily transaction limits: This is yet another way ghost cards help you keep tabs on your money, and one reason they’re a great solution in some business settings. By limiting daily transaction totals, you can make sure anyone using the ghost card (like an employee) isn’t spending more than you’ve approved.

Disadvantages of Ghost Cards

But remember that ghost cards (like virtual cards) don’t work in every situation. Specifically, you won’t be able to use a ghost card to…

  • Make in-person purchases from brick-and-mortar stores.
  • Return purchases that require you to physically present a card.

How to Obtain a Ghost Card for Your Business

If ghost cards sound like something your business could use, reach out to your bank or card issuer. Many financial institutions have ghost card products available, if you know what to ask for. And if your first query is met with confusion, try asking about virtual cards as well – remember, they’re the same thing.

P-Cards, Purchasing Cards, and Procurement Cards

You’ve likely heard of p-cards, purchasing cards, or procurement cards, but if you’ve never actually used them, you’re probably not familiar with how they work.

For the most part, people use the terms “p-card,” “purchasing card,” and “procurement card” interchangeably. There seems to be a slight preference for “procurement card” over “purchasing card” in the UK (and for “purchasing card” over “procurement card” stateside), but really, you’ve got a good chance of hearing any of the terms anywhere.

For the purposes of this article, assume all of these terms mean the same thing.

Here’s a visual that shows the process of making purchases without a p-card versus with one:

Source

What Are Purchasing Cards?

Purchasing cards help businesses improve efficiency in the purchasing and procurement process. While most purchasing cards function like charge cards (remember those?), it’s also possible to get a p-card that functions more like a traditional business credit or debit card.

The standard purchasing card model works like this:

  • Your employees make expense purchases with their cards.
  • Your card issuer or bank fronts the money for the purchase (as with a credit card).
  • At the end of the billing cycle (which is one month at the longest), you are responsible for paying your purchasing card bill in full.

That last point is an important consideration, and it bears repeating: unlike credit cards, you must pay your p-card balance in full every time you get a bill. If you don’t, you could face steep fines or even revocation of the card.

Advantages of Procurement Cards

Before procurement cards, businesses with tight internal money controls had to go through a cumbersome process to make any purchase: get a requisition, fill out a purchase order, receive an invoice for the good or service, and write a check to cover the purchase amount.

That process costs an average of $50 to $200 in time and materials, whether the purchase it facilitates is $25 or $10,000. Enter p-cards.

Procurement cards streamline the purchasing process. This has several benefits:

  • Companies save money on the purchasing and procurement process.
  • Companies can procure goods and services faster.
  • Accounting teams can track employee expenses more easily.
  • Accounting teams save time.
  • Businesses can eliminate petty cash.

But efficiency isn’t the only way procurement cards help businesses manage funds. These cards also offer powerful backend controls that make it harder for employees to misuse company money. For example, most procurement cards let you…

  • Limit spending by Merchant Category Code (MCC), so that cardholders can only buy things from vendor types you’ve approved. For example, if you have a procurement card for your utilities, you might approve only utility providers so that if the cardholder tried to order something from Amazon, the transaction would be denied.
  • Limit total spending amounts so that your employees can’t use procurement cards to buy more than you’ve approved.
  • Another cool feature of procurement cards: you can get them in ghost card (aka virtual card) form. That is, you can set up a ghost card that functions as a p-card with any supplier and card issuer that’s open to the arrangement. This can enhance security even further.

Disadvantages of Purchasing Cards

In the right context, purchasing cards can be an effective way to handle business expense management. But they’re not a fit for every situation. One major consideration: in order for a p-card to work, the vendor you want to pay has to be willing and able to accept p-card payments.

Another potential limitation: purchasing cards may not tie in to the rest of your accounting system. While processing payments from these business cards is usually easier than accounting via checks and invoices, it may not use the same system as the rest of your finances.

Finally, it’s important to note that purchasing cards require a little extra work on the back end to implement. While deciding to use a business credit card or business debit card is mostly about deciding how much convenience you want, switching from existing purchasing processes to purchasing cards requires an in-depth review of those existing processes and a comparison to see if and how much p-cards could save you.

For this reason, purchasing cards are usually a solution that more established businesses adopt.

Choosing the Right Card for Your Business

So which is the best credit card for startups? Or does the best small business card run on debit? The answer depends on your unique needs. And often, businesses benefit from a combination of several card types.

If you’re still not quite certain which option is best for you, it’s probably wise to get on the phone with your banker or talk to your financial adviser. They may be able to ask questions about your business today and your plans for growth that will help you decide which card – or cards – will be your best bet to maximize efficiency and profitability.

One note of inspiration to leave you with: the Small Business Administration found that, when small-business owners applied for business credit cards as a way of accessing funds, 83% were successful at getting the full amount they needed. In other words: the business credit card solved their problem.


About the Author of this Guide

This guide was written by Bento for Business a leading provider of business debit cards. Throughout this guide, we’ve discussed the various cards that can help business owners and startups meet their expense management needs. It’s a question we care a lot about because the product we offer is designed to solve many of the problems small businesses have with the traditional options. We think of it as a “best of all worlds” option.

Our product, the Bento for Business Visa Debit Card, is, as its name implies, a business debit card. But it’s not a traditional debit card. Like normal debit cards, it doesn’t require business owners to pass a credit check and won’t put you in debt. But it also does a lot more, including the following:

  • Offers the kind of backend spending controls you usually only see on procurement cards or purchasing cards—but are much easier to use.
  • Offers rewards of the type usually associated with credit cards.
  • Can be used as a virtual or ghost card.
  • Can be used with a virtual API for a fully customized expense solution.

Here’s how our debit cards compare to traditional business spending solutions:

Feature Bento Cards Business Credit Card Business Debit Card Purchasing Card Virtual / Ghost Card Prepaid Cards
Spend control by card? Yes No No Yes Yes  Yes
Spend control by merchant category code? Yes No No Yes No Yes
Line of credit? No Yes No Yes Yes No
Interest? No Yes No No Yes No
Overdraft fee? No No Yes No No No
Transaction fee? No No No No No Yes
On / off switch? Yes No No No No No
Real-time visibility for all transactions? Yes No No No No No

If you’re interested in learning more, we’d love to show you how it works. Sign up for a free demo or give us a call at 866-290-4134. If you decide to try the card, you’ll get a 60-day free trial, with no commitment or obligation to use it after that. So if it doesn’t work, we’ll part ways on good terms.