Running a small business takes money, sometimes a lot. But while some small business owners rely on business loans, lines of credit, and (gobbling up) even home equity, these aren’t the only ways to get your hands on the cash you need so badly. In the same way that you can use a credit card for personal purposes, you can also use a credit card for business purposes. In fact, a Federal Reserve survey found that more than half of small business owners regularly used a credit card for their transactions. A business credit card can be extremely valuable if used correctly. Here is our step-by-step guide on how to get a business credit card.
WHY APPLY FOR A BUSINESS CREDIT CARD?
You don’t have to apply for a business credit card to be a legitimate business owner. But it has its advantages. You can save money when purchasing equipment and supplies. In addition, a business card can establish your business credit rating.
Having a trade credit score allows you to apply for financing using only your trade credit. It’s also a great way to separate your business credit from your personal credit.
Still, some business owners find their business too small to apply for a business credit card. The truth is, you don’t have to be running a large Fortune 500 company to get a business card. In fact, you don’t even have to be incorporated or be an LLC.
Many sole proprietorships have business credit cards. And there’s no rule that says you have to have employees to qualify. You can be a one-man show, whether you’re a landscaper or a freelance.
STEP BY STEP GUIDE TO OBTAINING A BUSINESS CREDIT CARD
1. Decide which card is right for you
There is no such thing as a universal credit card. This applies to personal credit cards as well as business credit cards, so don’t ask for a card at random. Do your due diligence and find a card that fits your business needs.
- Are you going to buy supplies or equipment on a regular basis? If so, look for a business credit card that pays you back with cash back rewards.
- Will you be traveling frequently on business? In this case, choose a card with which you earn points or miles redeemable for plane tickets, hotels, free baggage check-in, etc.
Keep in mind that while some business credit cards have higher credit limits than personal credit cards, which makes them attractive, they also tend to have annual fees and higher interest rates. .
2. Compare credit card rates and fees
Before choosing a particular business credit card, calculate the cost of owning the card. Sure, you might like a brand of credit card and its rewards, but what are you getting for your money?
Bottom line: The benefits of a card should be worth all the annual fees, and make sure you know the Annual Percentage Rate (APR). The lower your APR, the better. You will not know your actual rate until you have been approved. The app, however, will have APR ranges. This gives an idea of where you might fall on the ladder.
3. Check your personal credit score
Always, always, always check your personal credit score before applying for a business credit card.
Since your business has not yet established credit, it’s common for credit card issuers to base approvals on an applicant’s personal score.
They will pull your credit report, check your score, and review your payment history, debts, and the length of your credit history. This is how they assess whether you are an ideal candidate for a business credit card. You don’t need perfect credit to qualify. If you check your score and feel it’s too low to qualify for a business credit card, you can:
4. Calculate your income
When filling out a business credit card application, you will also need to provide annual income information. Not only income from your business, but income from other sources as well. Some people run a small business while still working part time or full time for an employer. If this applies to you, be sure to include this income.
5. Complete the credit card application
Once you’ve selected the right business credit card, it’s time to begin the application process.
Applications vary depending on the issuing bank. But you will be asked to provide your business name or your name if you are a sole proprietor. Other information you will need include:
- Employer Identification Number (EIN) or Social Security Number (SSN)
- Your role or title in the company
- Contact details (address, telephone number)
- Number of employees
- Type of business
- Years of activity
- Annual revenue
- Estimated monthly expenses (how much you will put on the credit card)
Keep in mind that you may need to sign a personal guarantee when applying for a business credit card. Basically, you agree to be responsible for the debt if the business goes bankrupt. So even if the credit card is in your business name, you are still responsible for the balance.
1. Choose a bank that reports to business credit bureaus
The goal of getting a business credit card isn’t just to have a line of credit for your business. It is also to build credit separate from your personal credit. For this to happen, however, the bank must report your activity to the three major business credit bureaus (Dun and Bradstreet, Equifax Company, and Company Experiential). Reporting your activity is essential for establishing a business credit score, which can make it easier to obtain future business loans and lines of credit.
2. Apply for a secure business credit card
In the event that you are turned down for an unsecured business credit card, perhaps because you have a low or no credit rating, don’t give up hope. Another option is to apply for a secure business credit card from a bank. A secure business credit card requires a security deposit that acts as collateral. This deposit is not a form of prepayment, however. Rather, the bank keeps your deposit in an interest-bearing account and only receives those funds if you don’t pay what you owe. To illustrate how it works: If you apply for a secured card and give the bank a deposit of $ 2,000, you will receive a business credit card with a credit limit of $ 2,000. Once you have demonstrated a history of successful credit card management, the bank can refund your deposit and convert your secure card to an unsecured business card.
3. Get a business credit card from your personal bank
If your personal bank offers business credit cards, this is a great place to start buying a card. It might be easier to get approval given your current relationship.
4. Pay your credit card bill on time
Maintaining a good payment history creates a strong credit rating for the business and helps keep your balance low. Always pay your bill on time each month and, where possible, pay off your balance in full each month to avoid long-term business debt.
While you don’t need a business credit card to run a business, getting one does have its benefits. You can buy equipment and supplies without tying up your money, you can establish a business credit score, and you can separate your business credit from your personal credit.
So whether you’re self-employed or own a small business with employees, a business credit card can increase your business’s purchasing power and streamline finances.