Operating a small business takes money — sometimes, a lot of it. But while some small business owners rely on business loans, lines of credit, and (gulp) even their home equity, these aren’t the only ways to get your hands on much-needed cash. The same way you can use a credit card for personal use, you can also use a credit card for business use. In fact, a survey conducted by the Federal Reserve found that more than half of small business owners used a credit card for operations on a regular basis. A business credit card can be extremely valuable if used correctly. Here’s our step-by-step guide on how to get a business credit card.
WHY APPLY FOR A BUSINESS CREDIT CARD?
Applying for a business credit card isn’t required to be a legit business owner. But it has its advantages. You can conserve cash when buying equipment and supplies. Plus, a business card can establish your company’s credit score.
Having a business credit score allows you to apply for financing using only your business credit. It’s also an excellent way to separate your business credit from your personal credit.
Yet, some business owners feel that their company is too small to apply for a business credit card. The truth is, you don’t have to operate a large Fortune 500 company to get a business card. In fact, you don’t even have to be incorporated or an LLC.
Many sole proprietors have business credit cards. And there’s no rule that says you must have employees to qualify. You can be a one-man show, whether you’re a landscaper or a freelancer.
STEP-BY-STEP GUIDE TO GETTING A BUSINESS CREDIT CARD
Not sure where to start? We recommend following these four steps.
1. Decide Which Card Is Right for You
There’s no one-size-fits-all credit card. This applies to personal credit cards as well as business credit cards, so don’t apply for a card at random. Do your due diligence and find a card that fits the needs of your business.
- Will you regularly purchase supplies or equipment? If so, look for a business credit card that pays you with cash back rewards.
- Will you travel frequently for business? In this case, choose a card where you earn points or miles redeemable for airfare, hotels, free baggage check, and more.
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 settling on a particular business credit card, calculate the cost of being a cardholder. Sure, you might like a credit card brand and its rewards, but what are you getting for your money?
Bottom line: A card’s perks should be worth any annual fee, and make sure you know the annual percentage rate (APR). The lower your APR, the better. You won’t know your actual rate until after you’re approved. The application, however, will have APR ranges. This provides an idea of where you might fall on the scale.
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 yet to establish credit of its own, it’s commonplace for credit card issuers to base approvals on an applicant’s personal score.
They’ll pull your credit report, check your score, and review your payment history, debts, and the length of your credit history. This is how they gauge whether you’re 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:
- Look into a secured credit card to help build your credit
- Take time to boost your score. Pay off your personal credit card debt, pay your bills on time, and dispute errors on your credit report.
4. Calculate Your Income
When filling out an application for a business credit card, you’ll also need to provide annual income information. Not just income from your business, but income from other sources, too. Some people operate a small business while continuing to work part-time or full-time with an employer. If this applies to you, don’t forget to include this income.
5. Complete The Credit Card Application
Once you’ve narrowed down the right business credit card, it’s time to start the application process.
Applications vary, depending on the issuing bank. But you’ll be asked to provide your business name, or your name if you’re a sole proprietor. Other information you’ll need includes:
- Employer identification number (EIN) or Social Security number (SSN)
- Your role or title in the business
- Contact information (address, phone number)
- Number of employees
- Type of business
- Years in business
- Annual income
- Estimated monthly spend (how much you’ll put on the credit card)
Be mindful that you might have to sign a personal guarantee when applying for a business credit card. Basically, you agree to be responsible for the debt in the event that the business fails. So although the credit card is in your business name, you’re still liable for the balance.
Don’t let the application process overwhelm you.
1. Choose a bank that reports to the business credit bureaus
The goal of getting a business credit card isn’t just to have a line of credit for your business. It’s also to build credit that’s separate from your personal credit. For this to happen, though, the bank must report your activity to the three main business credit bureaus (Dun and Bradstreet, Equifax Business, and Experian Business). Having your activity reported is key to building a business credit score, which can make it easier to get future business loans and lines of credit.
2. Apply for a secured business credit card
In the event that you’re denied an unsecured business credit card — maybe because you have a low credit score or no credit score — don’t lose hope. Another option is applying for a secured business credit card through a bank. A secured business credit card requires a security deposit that acts as collateral. This deposit isn’t a form of prepayment, though. Rather, the bank holds your deposit in an interest-bearing account, and only touches these 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 $2,000 deposit, you’ll receive a business credit card with a $2,000 credit limit. Once you demonstrate a history of successfully managing the credit card, the bank may refund your deposit and convert your secured 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 shopping for a card. It might be easier to get approved given your existing relationship.
4. Pay your credit card bill on time
Maintaining a good payment history builds a strong business credit score, and it helps keep your balance low. Always pay your bill on time each month, and whenever possible, pay off your balance in full every month to avoid long-term business debt.
Although you don’t need a business credit card to operate a business, getting one has its benefits. You’re able to buy equipment and supplies without tying up your cash, you can establish a business credit score, and you can separate your business credit from your personal credit.
So whether you’re a self-employed freelancer or own a small business with employees, a business credit card can boost your company’s purchasing power and streamline finances.
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