Pursuing your passion as a baker and opening your own bakery is a dream come true. But now that you’re also a business owner, one of the things you’ll need to think about is how you’ll handle your bakery’s daily spending.

Oftentimes, small business owners may prefer using their business debit cards for their day-to-day expenses because it’s convenient and they don’t accrue any interest rate if they use one. However, opting for a debit card can actually do more harm than good for your business.

Here’s why:

1. You miss out on rewards and points

Banks and other financial institutions usually don’t offer rewards and cashback on their debit card products, unlike business credit cards. If you use your debit card a lot to buy ingredients, baking supplies, or pay for utilities, you’ll be missing out on thousands worth of rewards and cashback that you’d otherwise be able to enjoy if you’d used a credit card.

As with business credit cards, you can earn points every time you use your card for transactions (i.e., team dinners, airline tickets, inventory reordering, etc.). Depending on the issuer, you may be able to convert these points into travel miles or cashbacks. Either way, you get to save thousands of dollars, which you can invest back in your business. With debit cards, you’d be spending money you already have without getting anything in return for your purchases.

2. It doesn’t contribute to your business credit score

With debit cards, you’ll be using your savings to pay for your transactions, which wouldn't have much impact on your credit score (since you’re not borrowing and repaying the money).

It’s worth noting that credit scores are one of the primary factors that lenders look at when determining a business's eligibility for a loan. If you’re in the early stages of your business and you’re still building credit or working on improving your credit score, using your debit card won’t be of much help. This can prevent you from qualifying for comprehensive loans in the future.

If you want to build your credit score, you might need to consider using business credit cards simultaneously or applying for alternative loans to get an additional cash injection.

3. It doesn’t have a fraud protection feature

Credit cards come with comprehensive fraud protection clauses that allow users to dispute any proven fraudulent purchases or activities. This can come in extremely handy if you happen to lose your card and an unauthorized transaction took place.

Debit cards don’t come with the same comprehensive fraud protection feature. Because the money is deducted directly from your savings, it becomes difficult for the banks and other financial institutions to track the activity and get your money back.

4. You may not be able to dispute purchases

If you encountered a problem with one of your purchases (i.e. you received the wrong item or you didn’t receive it at all), it will be harder to get a refund if you used a debit card. Since the amount has been deducted and transferred to the merchant’s account, the only thing left is to rely on the goodwill of your merchant and hope that they refund the amount you paid.

Credit card providers, on the other hand, are bound by federal regulations, which require them to perform a thorough investigation on any issue concerning a consumer’s purchase or transaction. Once the investigation is complete, they are required to refund the total amount. 

5. The bank may limit your daily spending

Banks may also impose a daily spending limit on your debit card, so you may not be able to purchase expensive baking equipment if the price goes beyond your daily limit..

If you’re buying essential equipment to replace a broken one (e.g., ovens, blast freezers, etc.), the inability to purchase new equipment ASAP may disrupt your operations. Even if you’re thinking of procuring the equipment through other forms of financing, the application process can take days to weeks to complete. This can further drag your bakery’s operations and potentially cause you to lose hundreds to thousands in profit.

Final Thoughts

Debit cards can be a convenient choice for some businesses, and it isn’t always necessarily bad. However, it might be better to choose an alternative source of funding (e.g., business credit cards or business lines of credit) or use debit cards together with other sources of funding to run your business.

If you’re thinking of using debit cards exclusively for any business transactions, it’s always wise to consider the potential risk and rewards involved. That way, you will be able to make a more informed decision regarding your company’s financial future.

About the Author 

Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.