So you began a business – and clients are booming! Now you are in the happy situation of needing more capital to fund your business's growth. This is where a business charge card comes in handy.
We've come up with a guide outlining what you need to be eligible for a a business charge card, how to apply for a business charge card and also the benefits and potential issues that include you get one.
What Must you Be eligible for a a company Charge card?
You might be wondering if you are entitled to a company credit card. Well, let's say you sell products or services, you're likely entitled to a business charge card.
Proof of business
Your business doesn't have to be incorporated (think: LLC, S Corp, etc.) to try to get a business charge card. And also the size of your company does not matter, either (here's taking a look at you, sole proprietors!).
Do you sell on Etsy, teach online fitness classes or drive for any rideshare app? When it comes to qualifying for a business credit card, businesses of all types and sizes may apply.
You might not be eligible for a a company card if you cannot provide proof of business revenue and expenses. So keep track of all business revenue and expenses, even if they're few and far between. It'll provide the proof you need to show you're operating some type of a business.
If your company isn't getting a lot of money at this time, you may not be eligible for a a card with a high credit limit. When the card you are interested in has a high credit limit, you will need to increase your revenue to increase your odds of getting approved for it.
Creditworthiness
When a company credit card issuer assesses your business to see if you qualify, they'll operate a hard inquiry on your business credit, reviewing credit reports generated through the three major business credit bureaus. Each bureau collects data and produces its own business credit report and credit scores.
The three major business credit agencies are:
- Equifax(R) Business
- ExperianTM Business
- Dun & Bradstreet CreditMonitorTM
FYI: Credit ratings for businesses aren't calculated like consumer (aka personal) credit scores, though there is some overlap like credit utilization, chronilogical age of accounts and payment history.
The business card issuer could also operate a hard inquiry in your personal credit history to confirm your reliability as a borrower (more on this later). Because business credit scores have a similar effect as consumer credit scores on credit applications, higher business credit ratings you can get better card terms. If your business credit scores have been in the lower range, you might end up paying higher rates of interest or may not be approved for the cards you want.
Creditors will also take a look at business's financial data (much like your revenue and debts) to find out your debt-to-income (DTI) ratio.
Differences Between Business Charge cards and Consumer Cards
Business credit cards work nearly the same as consumer (or personal) charge cards. You can make purchases with both cards, and also you repay what you spent. Both cards accrue interest in the same way and, generally, both earn rewards within the same ways.
You may even get a tax break on annual fees for business and consumer credit cards if you are using them for business expenses.
But there are a number of differences you should be aware of:
- Bonuses and rewards: Business credit cards will likely have rewards which are more focused on business expenses, like internet bills or office supplies. The rewards you earn with consumer credit cards is much more centered on everyday expenses, like groceries or eating out.
- 0% interest APR periods: These offers are usually rare for business cards. They generally don't be as durable as they do for consumer credit cards. And they usually only apply to purchases, not balance transfers.
- Protections: Most card issuers extend some form of protection for their cardholders, but they don't go so far as personal credit card protections, which may include protecting cardholders from high fees for late payments or maxed out a card. Be sure you know what protections your business credit card offers.
- Credit reporting: Some business credit card companies only report your company card activity to business credit bureaus, but some will report your activity to both business and credit bureaus. Depending on the card company, your company activity could show up on your personal credit report.
- Credit limits: You will probably qualify for a significantly higher borrowing limit on the business charge card than on a consumer charge card since the spending limits on business cards derive from your individual income as well as your business revenue.
Generally speaking, you should just use a company card for business expenses. Some business card issuers even include limitations on a cardholder's capability to make use of a business card for private expenses.
What Are the Benefits of a Business Charge card?
If you have a small company and also have a credit card, you may think you don't need to obtain a small business charge card. You might be wondering if all the researching into cards and also the time spent applying for them is going to be well worth the hassle. But a small company credit card could be a great asset. Even if you're a sizable company, getting a business card can open doors to more money.
There are many benefits to having a business credit card:
- Bookkeeping: Having the ability to keep the business expenses outside of your personal expenses makes things easier when tax season rolls around. It also protects your individual finances from legal issues that could arise with your business, like business audits. LLCs and corporations require this separation so individuals aren't liable for business debts or legal claims.
- Access to capital: A high level new business, you may need assist with cash flow but might not have enough credit rating to qualify for business loans or credit lines. A business credit card provides you with access to a revolving line of credit to begin growing your business immediately.
- Building business credit: Business credit activity is usually tied to a business's employer identification number (aka tax identification number) and may improve your company credit ratings and history. You might not be able to build business credit if your business is tied to your Ssn, which is the case for many sole proprietors.
- Rewards: You can earn travel rewards, cash rewards, points, gift cards and much more on eligible purchases. You may earn discounts while you shop at certain retailers and obtain sign-up bonuses or other perks, like extended warranties.
What Would be the Potential Problems with a Business Credit Card?
While there are lots of benefits to having a business credit card, there are some potential issues we should mention.
- Payment liability: Generally, you pay off your business card balances with business revenue. If you cannot use business revenue to repay your card's balance, you will need to repay it with your personal money.
- Credit limits: If your company spending varies widely, it might be harder to estimate a borrowing limit which will cover all your expenses. If you get a card having a low borrowing limit that can't cover larger purchases, you might want to delay purchases or shell out of pocket.
- Credit history: If you've got a thin business credit rating or poor credit, you will not be eligible for a all business credit cards. You may even have to obtain a secured charge card. The credit card acts just like a revolving line of credit for business people with bad or limited credit and requires a refundable deposit to open.
How Do You Get a Business Credit Card?
Now that you've got some background on business charge cards, let's walk-through how to get one.
Check eligibility and credit
First, make certain you're entitled to a company charge card and check your business credit history by purchasing a credit report in one or all three business credit agencies. This should help you determine which credit card(s) to try to get.
You'll also want to look at your personal credit ratings since business credit card issuers may review your business and personal credit whenever you apply for a charge card, especially if your business is new and hasn't established a credit history.
Make sure your personal finances are who is fit and that your credit scores and credit rating reflect responsible debt management, including on-time payments, a minimal DTI and low credit use.
Remember, creditors may perform hard credit report checks on your personal and business credit reports. The hard credit inquiries could cause your credit ratings to dip temporarily.
Get organized
There are some documents and knowledge you will probably have to obtain a card. Preparing them ahead of time can speed up the applying process. Keep in mind that what's required with an application may vary by credit card issuer.
- Legal company name, address, telephone number and tax identification number (aka EIN)
- Industry and business structure (nonprofit, corporation, sole proprietorship, etc.)
- Years in business and quantity of employees
- Annual business revenue
- Estimated monthly business expenses
- Personal income, Social Security number and date of birth
Decide and apply
Research business credit cards and select the ones that best match your business's needs and goals. Ask yourself a few questions that will help you limit your search:
- How can you maximize rewards according to your spending?
- What would be the card's fees (annual fees, foreign transaction fees, maintenance fees, etc.)?
- What types of purchases do you plan on making using the card where (restaurants, wholesalers, airlines)?
- How often would you anticipate using the card and how much would you like to spend?
- Does the card issuer report your company card activity to business credit bureaus and consumer credit bureaus?
Once you have chosen on what card(s) to apply for, the application process is rather much like trying to get credit cards. You are able to apply online or in person at a bank, credit union, etc. Avoid applying for too many charge cards at once. One hard credit assessment will briefly drop your scores. You'll only multiply that effect with several hard checks.
If you aren't immediately approved, the credit card issuer should send an agreement letter in 7 – 10 working days. If you are approved, you'll likely receive your new card in 7 – 14 business days.
Start making use of your card
Once you receive your card, activate it and begin swiping – responsibly. Make use of your business credit card for purchases that help your business grow.
Pro tip: Make use of your card for purchases you can lead to full through the statement due date.
When you pay off your whole card balance, you are not charged interest, you stay from credit card debt, you keep your credit utilization (which plays many in calculating your credit ratings) low and also you provide your credit scores a lift.
And if you are having trouble paying off your company debts, you will find steps you can take and strategies you are able to implement to help get you back on track.
Build a Strategy Before Getting a Card
The process of obtaining a business charge card is fairly simple, particularly when you're prepared and know what to anticipate.
Always consider your business's needs and goals when deciding which credit card meets the assignment. Make your life, or at best the application process, easier and collect all the information you will need to apply ahead of time.
And have a strategy in place for responsibly while using credit card and paying it off.
