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How to Get a Business Credit Card for a Startup | Best Tips & Advice

by | Jun 16, 2024 | Startups | 0 comments

Understanding Business Credit Cards for Startups

Business credit cards are a valuable financial tool for startups looking to manage their expenses and build business credit. Unlike personal credit cards, business credit cards are designed specifically for business use, offering features and benefits tailored to the needs of small businesses and entrepreneurs.

What is a Business Credit Card?

A business credit card is a revolving line of credit intended for business expenses. These cards often come with unique rewards programs, such as earning points or miles on common business purchases like office supplies, travel, and dining. Business credit cards can help startups manage cash flow, track expenses, and build a strong business credit history.

Business Credit Card Personal Credit Card
Designed for business expenses Intended for personal use
Offers business-specific rewards and benefits Offers rewards geared towards personal spending
Helps build business credit history Impacts personal credit history

How Business Credit Cards Differ from Personal Credit Cards

While both business and personal credit cards provide a revolving line of credit, there are key differences between the two. Business credit cards are designed to accommodate the unique needs of businesses, such as higher credit limits, employee cards, and expense tracking tools. Additionally, business credit cards help build a company’s credit score, which is separate from the owner’s personal credit score.

Business credit cards also allow owners to add authorized users, such as employees, who can make purchases on behalf of the company. This feature simplifies expense tracking and eliminates the need for reimbursements, while also helping to prevent fraudulent charges.

Benefits of Business Credit Cards for Startups

Business credit cards offer numerous advantages for startups, including:

  • Financing purchases: Business credit cards provide a flexible way to finance essential business expenses, such as equipment, inventory, and marketing costs.
  • Simplifying expenses: By using a dedicated business credit card, startups can easily track and categorize expenses, simplifying bookkeeping and tax preparation.
  • Collecting rewards: Many business credit cards offer valuable rewards programs, allowing startups to earn points, miles, or cash back on their business spending.

Separating Personal and Business Finances

One of the most crucial aspects of running a successful startup is maintaining a clear separation between personal and business finances. Using a business credit card helps establish this separation, making it easier to track business expenses and maintain accurate financial records. This separation also protects the business owner’s personal credit, as business credit card activity is reported to business credit bureaus rather than personal credit bureaus.

It’s important to note that while business credit cards help separate personal and business finances, many issuers still require a personal guarantee from the business owner. This means that the owner is personally responsible for any debts incurred on the card, and late payments or defaults can negatively impact their personal credit score.

Building Business Credit

Establishing a strong business credit history is essential for startups looking to secure financing, negotiate better terms with suppliers, and qualify for larger contracts. By using a business credit card responsibly and making timely payments, startups can build a positive business credit score over time.

To maximize the impact on their business credit score, startups should aim to keep their credit utilization low and pay their balances in full each month. Consistently demonstrating responsible credit usage can help startups establish a solid foundation for their business credit history.

Access to Capital and Cash Flow Management

Business credit cards provide startups with access to capital when they need it most. By leveraging their credit limit, startups can manage cash flow gaps, invest in growth opportunities, and cover unexpected expenses. Some business credit cards even offer introductory 0% APR periods, allowing startups to finance larger purchases without incurring interest charges for a set time.

Qualifying for a Business Credit Card as a Startup

When applying for a business credit card, startups may face unique challenges due to their limited business history and revenue. However, there are several factors that can influence a startup’s eligibility for a business credit card.

Personal Credit History and Credit Score

For most startups, the business owner’s personal credit history and credit score will be the primary factors in determining their eligibility for a business credit card. Issuers typically require a personal guarantee from the business owner, meaning they will be personally responsible for any debts incurred on the card. As a result, having a strong personal credit score can greatly improve a startup’s chances of approval.

Credit Score Range Rating
800 – 850 Exceptional
740 – 799 Very Good
670 – 739 Good
580 – 669 Fair
300 – 579 Poor

Business Structure and Revenue

The type of business structure and revenue can also impact a startup’s eligibility for a business credit card. Sole proprietors, freelancers, and gig workers may have an easier time qualifying for a business credit card, as their personal credit history is often the primary consideration. However, startups with more complex business structures, such as partnerships or corporations, may need to provide additional documentation and financial information during the application process.

Employer Identification Number (EIN)

An Employer Identification Number (EIN) is a unique number assigned by the IRS to businesses for tax purposes. While not always required for business credit card applications, having an EIN can help startups establish a separate business identity and potentially improve their chances of approval. Sole proprietors and single-member LLCs can often use their Social Security Number (SSN) in place of an EIN when applying for a business credit card.

Choosing the Right Business Credit Card

With numerous business credit card options available, it’s essential for startups to choose a card that aligns with their specific needs and goals. Consider the following factors when selecting a business credit card:

Evaluate Your Business Spending

Analyze your startup’s typical daily business expenditures and identify the categories where you spend the most. Look for business credit cards that offer enhanced rewards or benefits in those categories. For example, if your startup frequently travels for business, a card with travel rewards and perks like airport lounge access may be a good fit.

Compare Rewards and Benefits

Business credit cards offer a variety of rewards and benefits, such as points, miles, or cash back on purchases. Some cards also provide additional perks, such as introductory bonus offers, travel insurance, or employee card management tools. Compare the rewards and benefits of different cards to find one that best suits your startup’s needs and spending habits.

Consider Fees and Interest Rates

When evaluating business credit cards, pay close attention to the fees and interest rates associated with each card. Some cards charge an annual fee, which can be offset by the rewards and benefits offered. Additionally, consider the card’s APR, as high interest rates can quickly negate the value of any rewards earned if you carry a balance. Look for cards with competitive interest rates or introductory 0% APR offers to minimize the cost of borrowing.

How to Apply for a Business Credit Card

Once you’ve identified the right business credit card for your startup, follow these steps to apply:

Gather Required Information

Before beginning the application process, gather all the necessary information, including:

  • Personal information: Name, address, Social Security Number (SSN)
  • Business information: Legal business name, business address, Employer Identification Number (EIN) if applicable, business structure, industry type, years in business, and revenue
  • Financial information: Personal income, business income, and monthly expenses

Submit the Application

Most business credit card issuers allow you to apply online, making the process quick and convenient. Fill out the application form, providing accurate information about your personal and business finances. Once submitted, the issuer will review your application and perform a hard inquiry on your credit report, which may temporarily lower your credit score by a few points.

Wait for Approval

After submitting your application, the credit card issuer will review your information and make a decision. The approval process can take anywhere from a few minutes to several days, depending on the issuer and the complexity of your application. If approved, you’ll receive your new business credit card in the mail, along with information about your credit limit, APR, and any applicable fees.

In conclusion, business credit cards are a valuable financial tool for startups looking to manage expenses, build business credit, and access capital. By understanding the benefits, qualification requirements, and selection criteria for business credit cards, startups can make informed decisions and choose the best card for their needs. With responsible use and timely payments, a business credit card can help lay the foundation for a startup’s long-term financial success.

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