How to Get a Small Business Credit Card for a New Business

How to Get a Small Business Credit Card for a New Business

June 5, 2020         Written By Heaven Speirs

Getting a credit card for your small business can sound like a daunting task, but it may not be as difficult as it seems. It can help you track your business expenses, simplify your taxes and bring some additional perks along the way. Here are some tips for getting a small business credit card for your new business.

Pros and Cons of Small Business Credit Cards

Before applying for a small business credit card, you need to determine if it is the right option for your business. Not every business needs a business credit card, but it could be a vital tool for expense management, small business credit building, and more.

Pros of Small Business Credit Cards

  • All your business transactions in one place: You do not have to sift through different bank statements to decipher business and personal expenses. Everything can go on the credit card.
  • Build business credit: This could help you secure a business loan or other line of credit in the future.
  • Backup payment option during cashflow problems: If you have not received a payment from your clients yet, you can still handle your expenses with a credit card.
  • Easy qualification: It is typically easier to get a small business credit card than it is to get a small business loan. You can quickly secure the extra funding you need while you build income and credit worthiness for your new business.
  • Rewards: Business cards come with cash back, airline miles, travel rewards, and other offers, just like personal credit cards. Get perks for the purchases you are already making.

Cons of a Small Business Credit Card

  • Debt temptation: If you’re not careful, your small business credit card can become a strong source of debt. Before committing to a card, make sure you can use it properly.
  • Risks with employee credit cards: If you get employee credit cards that tie into your main account, you run the risk of your employees making irresponsible purchases. You must pay for those purchases no matter what.
  • Higher interest than loans: This is not always the case, but business credit cards tend to have higher interest rates than loans. If you pay off your balance every month though, this should not be much of an issue.
  • Issues with your personal credit: You will most likely need to use your personal credit information to apply for your first business credit card. If the card is used incorrectly, it could adversely impact your personal credit and business credit.

What You Need to Do before Applying for a Small Business Credit Card

In order to have the best chance at approval, take time to prepare for your small business credit card application. Gather the right information, and you’ll be able to breeze through the application process.

Check Your Personal Credit Rating

Before applying for a small business credit card, check your personal credit score. This might seem irrelevant since your new business is applying for a line of credit, but it is actually an important factor in the application process. Your potential creditors will check your personal credit score as a way to gauge your business’s credit worthiness. As you build your business credit, your personal credit will become less important on applications. Since your new business does not have credit yet, your personal credit will be a primary marker of your ability to repay debts. Getting approved for a small business credit card account will generally mean you have sound credit in your personal life—typically a credit score of at least 700.

Get an Employer Identification Number (EIN)

An Employer Identification Number (EIN) is like a Social Security Number for your business. It is a requirement for any business credit card application you complete. You can apply for an Employer Identification Number online and immediately receive a downloadable form. The process is free, and it only takes a few minutes to complete. Print the form or download and save it for your records. Then you can use your EIN to apply for a business credit card.

Find the Right Small Business Credit Card

There are many small business credit cards on the market. Some may be better suited for your needs than others. Do you travel a lot for work? You may want a card with airline miles or hotel rewards. Do you need your card to make large business purchases that you pay off over time? If so, look for a card with a low-interest rate or a separate installment program for big transactions. It’s important to explore your options and choose the best card for your business’s overall needs.

How to Apply for a Small Business Credit Card

Once you have found the right credit card for your new small business, complete the application just like you would for a personal credit card. You will most likely need to provide your personal household information since your company is new and will not have any prior income information. That means your personal income and credit score will play a part in your ability to get a small business credit card. As time goes by and your business accumulates a financial history, your company may be able to access various lines of credit without your personal information. In the beginning though, you will have to provide a personal guarantee that you’ll repay the card, even if the business is unable to.

If your first application gets denied, don’t worry. Take some time to establish consistent income for your business, and then try again.

Do I Need to Register My Business to Get a Business Credit Card?

You do not need to have an incorporated business or limited liability company (LLC) to apply for a business credit card. All that is required is an Employer Identification Number (EIN) from the IRS. You may apply for an EIN as a sole proprietor or household employer. A sole proprietorship is a business with one owner that is not registered as an LLC. This includes freelancers and other self-employed individuals. A household employer is a person who hires someone to perform work in their home, such as a nanny, caretaker or housekeeper. If you fit into those categories, you can still apply for a business credit card.

Of course, if you have a registered business, you can apply for a business credit card. As long as you have an EIN, you will meet the requirements to apply for most cards.

Will My Business Credit Card Affect My Personal Credit?

You will most likely need to use your personal credit to get a business credit card for your new business. You will personally be linked to the card just as much as your business is. Positive payment history will help your credit. Negative payment history will hurt your credit. Think of yourself as a cosigner and the business as the primary applicant. In the future, you may have enough business credit to bypass the need for a personal guarantee.

Tips for Using a Business Credit Card

If you are approved for a business credit card, it is important to use it in the right way. Otherwise, you can damage your personal credit and/or business credit. A credit card is a great tool for managing business expenses, but only when it is handled correctly. Here are some small business credit card tips to keep in mind:

  • Only use your business credit card for business transactions. This will make it easy to report expenses on your taxes, and it shows what you are actually spending for the business. Do not go to lunch on the company’s dime or pay your personal bills with the company credit card. Conversely, you should not use your personal credit card for business expenses. Strictly separate your business and personal transactions to avoid confusion.
  • Pay off your balance as quickly as possible. Ideally, you should pay off your full credit card balance each billing cycle. With large business purchases, that may not always be an option. Establish a manageable repayment plan to pay off your card quickly, and you can bypass hefty interest payments.
  • Only buy what you actually need. Do not go into debt just because you have available credit. You may use your card for everyday business expenses, but only if you have funds for those expenses. If you cannot pay off your balance in a timely manner, you may need to reevaluate the purchase.
  • Be careful who you trust with your business credit card. You can get additional cards for your employees, but you need to monitor their spending closely. You will ultimately be responsible for their transactions, even if you did not approve of them. If you have multiple credit cards, you may get frivolous or unnecessary charges from employees who are not making the best use of the company’s money. You will also have to manage multiple cards, which can be stressful and time-consuming.
  • Set limits for employee credit cards. Most credit card companies will let you set individual spending limits for employee cards. This prevents employees from racking up unauthorized debt in large volumes. You may set lower limits for entry-level employees, then increase the limits for your executives. Do what is necessary to protect your business finances.
  • Keep your credit card statements for tax purposes. You can turn over your business credit card statements to your accountant for quick, efficient expense reports.

Getting a small business credit card for your new company can help manage your money and overcome cash flow problems early on. As with a personal credit card, it is important to keep an eye on the card’s fees and interest rates before accruing unnecessary debt. Pay off your balance quickly, monitor employee spending, and do all you can to preserve your business credit score. You will soon be able to apply for even better credit opportunities in the future.

The information contained within this article was accurate as of June 5, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

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heaven

About Heaven Speirs

Heaven Speirs is a contributing writer for LowCards.com. She remains up-to-date with the latest developments in the credit card industry and the financial sector as a whole. Heaven has over 10 years of experience in online journalism, the bulk of which has been focused on personal finance. Heaven attended Oklahoma State University, where she discovered her talent for research and content creation. In her spare time, Heaven enjoys painting, playing poker, and spending time with her husband and three dogs.