Small Business Credit Cards vs Purchasing Cards

The primary difference between a small business credit card and a purchasing card is that a purchasing card (also called a p-card, procurement card, or payment card) can be a charge card, prepaid card, or debit card. Meanwhile, a business credit card offers a revolving line of credit and comes with an annual percentage rate (APR).

A p-card that works like a charge card requires payment in full each month while those that are prepaid or debit cards must be preloaded with funds. Meanwhile, a small business credit card allows you to carry a balance into the next billing cycle, subject to applicable APRs. Both can be used for business-related purchases, but p-cards are meant specifically to streamline the business-to-business (B2B) purchasing process.

When To Use Small Business Credit Cards vs Purchasing Cards

What Are Small Business Credit Cards

A small business credit card is a revolving line of credit, often with a preset credit limit, that’s intended for business-related purchases. This is a great option for businesses that need quick funding options. Cardholders are required to pay at least the minimum payment due each month—the remaining unpaid balance in a billing cycle will then be charged with an APR.

There are different types of small business credit cards. Some of the most common types are:

• Cash back business credit cards: These offer cash back rewards on your purchases, which you can redeem as a statement credit, check by mail, or deposit to your business bank account. The amount of cash back you will earn varies per card. To see the best options, check out our leading cash back business credit cards.
• Business credit cards for travel: These offer travel rewards in the form of miles of points, which you can redeem for free flights or hotel stays. Some provide other travel perks and benefits, such as no foreign transaction fees, free checked baggage, and access to airport lounges. Check out our roundup for the best travel business credit cards for options.
• Rewards business credit cards: Most other business credit cards that don’t have specific rewards, such as cash back or travel rewards, offer point-based rewards. Typically, they have various redemption options, including statement credits, gift cards, merchandise, and travel.
• Secured business credit cards: These are designed for business owners with low credit scores who could not qualify for regular unsecured business cards. A refundable security deposit, which typically starts at $500, is required to qualify—the amount of which will be the basis of your credit limit. For recommendations, see our top-recommended secured business credit cards.

How Small Business Credit Cards Work

Small business credit cards work like regular consumer credit cards, except that the purchases made on the former must be intended for your business. Also, with business credit cards, you typically can add cards for your employees.

Most issuers offer a digital application option, where business owners can apply for their preferred business credit card and submit their requirements online. However, some credit card companies may require you to visit one of their branches for an in-person application.

Once your business credit card application is approved, you’ll receive your card in the mail within 10 to 14 days. Some issuers will give you the card number upon approval, so you can start using the card immediately. Depending on the card, you can earn cash back, miles, or points rewards on some or all of your purchases.

Typically, you’ll receive a statement at the end of your billing cycle, usually after every 25 days. You have the option to pay your balance in full each billing cycle so that you won’t be charged with an APR. However, only a monthly minimum payment is required.

If your business only pays the monthly minimum and carries a balance over to the following month, those unpaid balances will accrue interest. Any unpaid balances will continue to accrue interest until they are paid off fully.

Pros & Cons of Small Business Credit Cards

What Are Purchasing Cards

P-cards allow your company’s employees to procure goods and services without the need to go through the traditional purchasing and approval process. These cards are linked to the company’s account, and you can control which merchants they can be used for and how much the daily or weekly limits are.

There are three common types of purchasing cards:

1. Charge cards: All card transactions are drawn from a line of credit. You will receive your bill every 15 or 30 days (depending on your agreement), and the bill must be paid in full before the monthly due date.
2. Debit cards: You need to preload funds to the card, and the transaction amount will be deducted automatically from the card balance.
3. Prepaid cards: The company needs to load funds on the card before it can be used for any purchase transactions. The procurement transactions will be debited directly from the company’s main account. If you want options, check out our list of the best business prepaid cards.

How Purchasing Cards Work

P-cards are usually issued to employees to make business-to-business purchases, such as purchasing goods or services, and are best used for paying transactions with recurring vendors and suppliers. Compared to small business credit cards, p-cards provide more streamlined expense tracking, faster purchasing processes, and more robust control over spending.

Employers can set daily or monthly spending limits per user and set a merchant category code (MCC) to allow only specific merchants the card may be used for. Some p-cards allow you to block certain spending categories and set the time of the day when the cards may be used.

After a company issues a card to an authorized employee or department, the company then sets limits on how much can be spent on the card, and where it can be used, such as specific vendors or expense categories. Employees can use the purchasing card to make authorized purchases on behalf of the company. The p-card provider then processes the transaction and sends the information to the company through the procurement system.

Pros & Cons of Purchasing Cards

Small Business Credit Cards vs Purchasing Cards: Qualifications

If you’re a new business owner, a small business credit card may be the best card option for you because of its relatively simple qualification requirements compared to a p-card. To qualify for a business credit card, card issuers will typically check your personal credit score and require a personal guarantee.

Most credit cards require a good personal credit score, which is 640 or higher. A personal guarantee means that you will be held personally liable for any outstanding expenses on your company’s business credit card account.

Meanwhile, purchasing cards typically set minimum requirements for annual spending, level of cash flow, and annual revenues. This is because providers often want to see that your business is currently profitable and has been profitable during the last few years, giving them a high-level view of your business’s financial health.

Unlike most business credit cards, p-cards don’t usually require personal guarantees. Two of our leading business cards that don’t require personal guarantees are p-cards. Also, some p-card issuers may require a minimum credit score as part of the qualification requirements.

Here are the four main business credit reporting bureaus and what they consider a good score:

1. Dun & Bradstreet: 80 or higher
2. Experian: 80 or higher
3. Equifax: 90 or higher
4. FICO SBSS: 140 minimum if no business credit history

Small Business Credit Cards vs Purchasing Cards: Rewards

When it comes to earning cash back, points, and travel rewards for what you spend, small business credit cards rank best. Some cards offer rewards for certain spend categories, such as office supplies, gas stations, and restaurants, while others offer fixed rewards on all business purchases.

Conversely, p-cards generally don’t offer cash back, points, or travel rewards. Instead, some suppliers and service providers offer incentives in the form of discounts when you use a purchasing card to pay for your purchase transactions.

However, if you can’t decide between a p-card vs business credit card, you may want to check the rewards and discounts offered to see which provides better savings and benefits for your company.

Small Business Credit Cards vs Purchasing Cards: Costs

While the APR may seem high for business credit cards, many of them offer an introductory 0% APR for anywhere from six to 18 months. For options, see our leading business credit cards with 0% APR. Despite the costs, small business credit cards are a suitable option for those who need short-term financing and to carry a balance from time to time.

However, given the cost of an APR plus an annual fee, a purchasing card generally is a more inexpensive option if you can pay your balance in full each month or you have working cash to use for your purchases.

Small Business Credit Cards vs Purchasing Cards: Repayment Terms

Keep in mind that small business credit cards give you the ability to float business expenses as long as you’re willing to pay the interest. Although it’s recommended that you pay your credit card bill in full every month to avoid the extra cost, it isn’t required. What you need to pay each month is only the monthly minimum payment due.

Meanwhile, purchasing cards don’t offer this kind of flexibility. This is something that you should consider when choosing between a p-card vs business credit card. It’s important to use a p-card that works as a charge card only if you know you will be able to pay off your entire account balance at the end of each month. Often, p-card providers require that you set up auto repayment with them to make sure your payment obligations are met.

For p-cards that work as either prepaid or debit cards, you need to ensure that your company has sufficient working cash to pay for your business procurement expenses because purchases on these types of p-cards are directly drawn from your account balance.

Alternatives To Purchasing Cards & Small Business Credit Cards

If, for some reason, you don’t find p-cards and small business credit cards a good fit, consider the following alternatives:

• Corporate cards: Corporate cards or commercial cards are best for large businesses with many employees that have high transaction volumes and need higher credit limits. Usually, they work like regular credit cards, allowing you to carry a balance into the next billing cycle with interest. Corporate cards typically can be used for any merchant or store, but employers can set monthly caps, expense restrictions, and frequency limits.
• Virtual cards: For more security and control, virtual cards may be a suitable alternative. Similar to a p-card, they must be linked to a company’s main account. However, they only exist virtually and can be used digitally. Often, they are issued for single use, but some may issue card numbers that can be used multiple times. This option is best for businesses with frequent online transactions.
• Fleet and fuel cards: For businesses that own and operate a number of vehicles, a fleet card may be the best option. They are primarily used for fuel purchases but can also be used for vehicle maintenance at eligible locations. Some may even be used for certain product types in specific stores or merchants. Employers can set controls like limits on gallons or dollars per day or week, how many transactions are allowed per day, and authorized transactions, such as fuel only or fuel and maintenance.

Bottom Line

When deciding between a p-card vs business credit card, consider whether you’d prefer to float your expenses and earn rewards each month, or if you have recurring purchases with specific vendors and suppliers month after month. If you choose a p-card over a small business credit card, ensure you have sufficient cash on hand to either load funds to the card or pay your bill in full without difficulty.