Business card rewards, employee cards and personal liability

Business credit cards earn rewards much like personal cards, but the bonus categories, employee features and liability rules work differently. In short, rewards lean toward business spending, employee cards are usually free and come with spending controls, and you, not your employees, usually owe the bill.

Here's how each piece works and where the costs hide.

How business card rewards are structured

Most business cards use one of three structures. The right one depends on where your money actually goes, not on the biggest number in the ad.

According to NerdWallet's comparison of business and personal cards, gas, travel and dining are common bonus categories on both types. Business cards add categories such as office supplies, shipping, online advertising and phone and internet services, and business rewards caps tend to be higher. Once you pass a cap, the rate usually drops to the base rate.

NerdWallet also notes that business card rewards can usually be redeemed as a statement credit, and some points can be transferred to airline or hotel partners. If your team travels a lot, see how travel rewards cards value points.

Run your own numbers

Say your business spends $3,000 a month: $1,500 on online ads, $500 on shipping and $1,000 on everything else. Compare two hypothetical cards (examples, not real offers):

1. Bonus-category card: 3% on ads and shipping, 1% on the rest, $95 annual fee. That's $60 + $10 = $70 a month, or $840 a year. Minus the fee: $745.
2. Flat-rate card: 2% on everything, no annual fee. That's $60 a month, or $720 a year.

The gap is $25 a year. Shift $1,000 of the ad budget into "everything else" and the flat-rate card wins. Rewards math is sensitive to your spending mix, so use a few months of real statements rather than guesses.

Interest wipes out rewards

At the time of writing, NerdWallet says business card interest rates typically range from 18% to 28%, varying by card. Carry $10,000 at a 24% example APR and you pay about $200 a month in interest, nearly three times the $70 in the example above. Rewards only pay off when you clear the balance every month.

Employee cards and spending limits

Most business credit cards let you issue employee cards, usually at no extra cost, and many let you set a spending limit on each one, according to NerdWallet. Some issuers add software that captures receipts, categorizes spending and exports it to accounting tools. Personal cards, by contrast, typically offer authorized users without those controls.

A few habits keep employee cards from becoming a problem:

1. Give cards only to people who regularly buy for the business.
2. Set a limit on each card that matches the job, not the account's full credit line.
3. Put a short written policy in place: what's allowed, receipt rules and what happens with personal charges.
4. Review employee transactions every statement cycle, not at tax time.
5. Cancel or lock a card the day someone leaves.

Who is liable for the balance

On most small-business cards, you are. The Federal Reserve Board's 2010 report to Congress says small business cards typically require a personal guarantee, so both the business and the guarantor are responsible for balances. An employee who overspends with a card you gave them is generally your problem to settle with that employee. The issuer will still look to the business and to you for payment.

Fraud is different. The Fed's report says the federal limits on cardholder liability for unauthorized use apply to all credit cards, including business cards. The FTC explains that if you report a lost card after someone uses it, the most you might owe is $50. If only your card number is stolen and you still have the card, you aren't responsible for charges you didn't authorize.

There's one exception for larger employers. The Fed's report notes that a card issuer and a business that gives cards to 10 or more employees can agree by contract on the business's liability for unauthorized use. Even then, employees can't be held liable beyond the federal limits.

Corporate cards work differently again. NerdWallet describes them as issued to companies on the strength of business financials, usually without a personal guarantee. They generally require a formal entity and substantial revenue.

Do business cards show up on personal credit reports?

It depends on the issuer. Experian explains that applying usually triggers a hard inquiry on your personal credit. After that, business card activity appears on your personal report only if the issuer reports it to the consumer bureaus (Equifax, Experian and TransUnion). Some issuers report only to commercial bureaus, and others report only negative information, such as late payments. NerdWallet's comparison puts it this way: for most business cards, only nonpayment is reported to your personal credit.

The employee rows come from Experian's guide to company cards, which says an employee card tied to a small business account may be reported under the employee's name, while a corporate card from a large employer isn't reported under the employee's name.

If business card activity does reach your personal report, it counts like any other card. Experian notes that on-time payments help and high utilization hurts. Ask an issuer about its reporting policy before you apply. More on choosing a card type is in our business credit cards section.

Bottom line

Pick a rewards structure that fits your real spending, set limits on every employee card and pay in full each month so interest doesn't cancel out the rewards. Assume you are personally on the hook for the account, and ask how the issuer reports to consumer bureaus before you apply.