Every business needs enough purchasing power to cover daily expenses and overhead as well as unforeseen expenses. While there are multiple ways to obtain the money needed to pay for your business expenses, one option is to get a business credit card.
At Addition Financial, we provide business credit cards to our business members. There are pros and cons to buying on credit. So, with that in mind, we’ve created this guide to help you understand whether you need a business credit card and an overview of three requirements to apply for one.
While personal credit cards and business credit cards have some things in common, there are some important differences that you should keep in mind before applying for a business card.
These differences make business credit cards more useful for entrepreneurs and business owners than personal cards.
People may sometimes refer to a business credit card as a corporate credit card, but the two terms are not interchangeable.
With a business credit card, the financial responsibility of paying the bill goes to the person whose name is on the card. If you have a business card, you are personally liable for any charges. You will also be the person who gets the benefit of any rewards, whether they come in the form of points or cash back.
A corporate card is issued in the name of a business entity and that entity is liable for all charges. The business also receives any rewards associated with spending on a corporate card.
On a related note, corporate cards typically require deep scrutiny of your company’s finances. You may need to meet a minimum threshold for business income and business expenditures to qualify.
Any company considering a switch from individual business cards to a corporate card should be aware that employees who were previously claiming rewards may view the switch as a downgrade in benefits.
One of the things we get asked most frequently by people applying for business credit cards is whether there’s a risk that their personal credit will be affected. The answer, which may be frustrating to some, is yes – at least a little.
In most cases, the application will require a check of your personal credit for approval. The result is that you’ll have a hard inquiry on your credit report that will have a small impact on your credit score and stay on your report for 12 months.
There’s also the issue of who’s responsible for making business credit card payments. Even if you use the card for business purchases, the card is in your name and you are responsible for the payments. You should be making payments out of your business account but you may also be personally liable.
Many credit card companies require business card holders to sign a personal guarantee. If you fail to make your payments – or if your business fails – you’ll be on the hook personally to repay that debt.
As we mentioned above, many business credit card issuers report only to the three main business credit bureaus: Dun & Bradstreet, Equifax and Experian. However, if you’re late on your payments, those negative experiences may appear on your personal credit report.
Before you apply for a business credit card, you should know the requirements. Here are three to keep in mind, including one general requirement and two that encompass categories of information needed to apply for a business credit card.
The first thing you’ll need to do is to check your personal credit score and determine if you qualify. For most business credit cards, you’ll need good credit, which translates to a FICO score of 670 or higher. Some cards can accommodate lower scores but those come with higher interest rates and more restrictions. If your credit score is below 670, you may want to take some time to increase it by paying down your debt and making on-time payments before you apply.
Because a business credit card will be issued in your name (and may be backed by your personal guarantee) you’ll need to provide information about your personal finances to apply. Here are the things you’ll need:
As we noted above, the company issuing the business credit card will do a hard inquiry on your credit to review your payment history. The reason that credit card companies review your personal credit is that they want to be sure that you have sufficient income to make credit card payments while also meeting your other financial obligations.
Keep in mind that any negative information on your personal credit reports, such as recent delinquencies or tax liens, may make it difficult to qualify for a business credit card, particularly if your business is new and you don’t have a proven track record. The longer your business has been in existence, the less weight your personal credit will carry.
Your business credit card should be used only for business expenses. When you apply, you will be asked to provide important information about your business, as follows:
If you have any business partners who own at least 20% of your business, they will need to submit their Social Security numbers as well.
You should be prepared to provide financial reports to go with your application because they can help to verify your business income and expenditures.
If you are a sole proprietor or just getting started, you may wonder whether you need a small business credit card. Here are some of the benefits of a business credit card:
If you own a business, then it makes sense to get a small business credit card. You’ll have the credit you need to make necessary purchases and using a business card can help you maintain separation between business expenses and personal expenses.
Applying for a business credit card offers many advantages to small business owners, including the potential of rewards that can pay for some expenses and the convenience of using a credit card instead of writing a check or paying with cash. Be sure to shop around and compare interest rates and rewards before you choose a card.
Are you searching for a small business credit card to help you achieve your goals? Addition Financial is here to help! Click here to read about our business credit cards and apply today.