Cash flow is the lifeblood of any company, but revenue can ebb and flow with changing market conditions. Having additional purchasing power during the down times can help keep your business afloat. A business credit card can give you extra bandwidth, and buy you time until revenue picks back up again. Credit cards can also give you a way to expand your business without tapping into your cash reserves.
How business credit cards work
A business credit card issuer will focus on your company finances and credit history when they review your application. Approval is not solely based on your personal credit score, though that will be a factor. Once approved, you can use your business credit card to pay for business expenses.
Some of the best benefits of business credit cards include:
● Building business credit
● Earning rewards or cash back
● Working your way up to higher credit limits
Business credit card vs. personal credit card
Personal credit cards are approved using your FICO credit score and personal credit history. They typically have lower credit limits than business credit cards and will not build a credit history for your company. Business credit cards may also come with additional features, like a 0% introductory APR, unlimited cash back, and sign-up bonuses.
Another difference between business credit cards and personal credit cards is that the business credit card will be associated with your employer identification number (EIN), not your Social Security number (SSN). On the downside, business credit card issuers can increase your APR without notice, which is something personal credit card issuers can’t do, according to the CARD Act of 2009.
Who can qualify for a business credit card?
Any corporation or LLC can qualify for a business credit card, provided they’ve been in business for a while and meet the financial requirements of the credit card issuer. Sole proprietors and freelancers may not qualify with certain credit card companies because they don’t fit the business criteria, but there are some credit card issuers that specialize in cards for the self-employed.
Another option for business owners is a business charge card. Charge card issuers base their approvals on business finances, not your personal credit score. Business charge cards are good for business owners with poor personal credit but strong revenue or venture funding. There are also prepaid cards you can apply for to build your business credit.
What you need to apply for a business credit card
Gather the necessary documentation before applying for a business credit card so the approval process can be as smooth as possible. Your basic company information will be required, along with your incorporation documents and EIN. Financial reports showing revenue, assets, and liabilities will also be requested. Here’s a brief list of what you’ll need:
● Legal business name
● Business address
● Federal tax ID (EIN)
● Incorporation documents
● Business email and phone number
● Years in business
● Monthly expenses
● Annual revenue
● Additional owners
Requirements for business credit cards
The vetting process for a business credit card approval is more complex than what you’ll go through to get a personal credit card. Depending on the card you’re applying for, there may be additional requirements your business needs to meet. These can include:
● Revenue requirements
● Business credit score/personal credit score minimums
● Years in business requirements
● Industry restrictions
This is where you’ll need to shop around to find the best business credit cards available for companies in your industry. Revenue requirements vary, but most card issuers like to see a personal credit score of 670 or better for the primary signer on the card. It’s also safe to assume you’ll need to be in business for at least a year to get approved for a credit card, though some cards may accept applications from companies that have been in business for six months or more.
How to choose the best business credit card
The best business credit card for you is the one that provides your business what it needs to be successful. That could be a higher credit limit to purchase inventory, a better rewards program if you travel a lot, or cash back that can be put back into the business. You’ll also want to look at fees and annual percentage rate (APR) to make sure you’re choosing the right card. Here’s what to do next:
1. Research your options
It’s critical that you conduct thorough research on business credit cards before applying for one. Spend some time online looking at different credit card offerings, and be sure to compare features, fees, and APR.
2. Consider your business expenses
Look for business credit cards that offer cashback rewards in the categories you do the most spending in. Examples of this are hotels, airfare, and restaurant expenses. You’ll also want to look at the volume and amounts of your expenses to make sure you can use the card for everyday purchases.
3. Compare the benefits
Narrow your credit card options down to two or three and compare based on annual fee, potential rewards, ease of use, and integration with your existing business checking account. If you’ve done your research, the final decision should be easier to make. It’s always nice to be able to manage all your accounts from one convenient location.