As a business owner, you already know what it takes to offer products or services that people need and want. You’ve honed in on your skill and have come up with something that serves a need for your particular pool of customers.
But in addition to focusing on your craft, it’s essential that you ensure that your business’ finances are in order. How you manage your cash flow matters. Not only that, you’ll want to ensure that your business’ expenditures and credit are kept separate from your personal finances. Mixing the two just complicates things and affects both your personal credit and that of your small business.
One way to streamline your business expenses and even build up healthy business credit is to use a business credit card. In addition to the typical perks and conveniences that people benefit from with credit cards, business credit cards can help companies separate their business spending from personal consumer spending.
This not only makes accounting practices easier, it’s also helpful for tax purposes. And if you’ve got employees, you’ll be better able to oversee their business-related purchases too.
Business credit cards are also useful in keeping your own personal credit separate from that of your business. Anything to do with your business credit card use won’t show up on your personal credit report or impact your credit score.
What is a Business Credit Card?
Business credit cards give business owners quick and easy access to credit, just like a typical consumer credit card would. You’ll have a set limit that you won’t be able to go over and are free to spend up to that credit limit amount (although it’s not recommended to do so).
You will be required to pay back what you’ve used every month. Any monies used in a particular billing cycle will be charged interest if the balance isn’t paid back in full each month.
A business credit card is not only a great tool to help separate your business and personal consumer spending, it’s also a convenient way to access funds needed to make purchases to cover short-term needs. Not only that, these cards can boost your business’ buying power by increasing your business credit.
Building business credit is important, especially if you’re considering expanding in the near future. By developing and strengthening your business credit, you’ll be afforded access to more money to borrow when needed. Business credit cards can be the perfect tool to help you establish business credit.
Much like personal credit, healthy business credit can open the doors to several benefits, such as lower interest rates and insurance premiums. In fact, many business owners take out business credit cards for the sole purpose of establishing business credit.
How to Qualify For a Business Credit Card
As with a personal credit card, there are certain criteria that must be met in order to get approved for a business credit card. But such criteria are pretty lax. In fact, it’s rather easy to qualify for a business credit card. All you really need to do is show that you have an actual business and the financial means to repay whatever you charge on your card.
Before you’re approved, your income and credit history will be looked at. Usually, information that’s been reported to the commercial credit bureaus about your business will be looked at by credit card companies. However, if your business is new or hasn’t had enough sales to establish credit, your personal credit history will be looked at.
If your credit score is low or you have several flaws on your credit report, it might be a little harder to qualify for a card with a sizable credit limit and low-interest rate. On the other hand, if your personal credit is excellent and your credit report is clean, there’s little reason for you not to get approval with attractive terms and rates.
The good news is that you can use your business credit card to establish good business credit. By carefully managing and monitoring your expenditures and paying your bills in full every month, you can eventually build strong business credit. This, in turn, will help you get approved for a higher credit limit at a better interest rate.
How to Find and Apply For a Business Credit Card
There are plenty of business credit card companies out there willing to extend credit to those who qualify. Finding one is relatively easy, and typically only requires a trip to your bank or even just a quick internet search. Some of the more popular ones include the following:
- American Express SimplyCash Plus
- Capital One Spark Cash
- Chase Ink Business Preferred
- CitiBusiness / AAdvantage Platinum Select
As far as applying for a business credit card is concerned, the process is relatively the same as a personal credit card. You’ll have to confirm your identity by providing your full name, address, date of birth, and contact information.
You will also need to provide your business’ name, business tax I.D. number, and the time and place that your business was created. If you don’t have a tax identification number or are a sole proprietor, the credit card company will want your Social Security Number.
You will also be required to provide your business’ gross annual sales and net profit. Applying for your first business credit card may require that you provide your business revenue as well as your personal income, especially if your company has yet to turn a profit.
Are Business Credit Cards For Everyone?
There are certainly some perks to having a business credit card. They’re convenient and make it easy to manage your business’ accounting. They also offer rewards and incentives, such as points towards travel and shopping discounts. Business credit cards are also extremely useful for building business credit when used responsibly.
But business credit cards can also come with their own set of drawbacks if they’re placed in the wrong hands. If you have a tendency to lag behind on your bill payments, adding another credit card into the mix might do you more harm than good. While a business credit card is meant to help increase your purchasing power and establish strong business credit, it can do the opposite if you’re not disciplined enough to ensure every payment is made in full at each billing cycle.
You will also be personally liable if you fail to make your payments on time and in full. Since the majority of small business credit cards require a personal liability agreement from applicants, late or missed payments may negatively impact your personal credit and your business credit.
The Bottom Line
Whether you’re just starting a business or have managed to establish a successful one, a business credit card may be a beneficial addition. You’ll be able to establish business credit, keep your personal finances separate for easier accounting, and even take advantage of discounts and perks for each dollar spent. Just make sure to treat the card responsibly to protect both your business and personal credit.
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