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Whether you’re a freelancer or small business owner, getting a business credit card can help you streamline your finances, build your business credit, and give you access to working capital. And, if you choose the right business credit card, you can earn rewards like cash back and free hotel stays for your company. While applying for a business credit card is similar to applying for a personal credit card, there are a few extra steps and requirements involved. Here’s what you need to know about business credit cards, including how to find and open a business credit card for the first time.
What Is a Business Credit Card?
A business credit card is a credit card designed specifically for business use. And, you don’t have to be a big corporation to qualify for a business card. Many creditors will work with small businesses that have five or fewer employees. Even sole proprietors can qualify for some business credit cards. Business credit cards generally work the same way as personal credit cards. Unlike a loan, a credit card is a form of revolving credit. You have a maximum credit line and can charge expenses to the account up to that amount. You’ll receive acredit card statement each month showing both your outstanding balance and the minimum amount you must pay to keep the account current. As you pay off your balance, your available credit is replenished. There are a few ways that business credit cards differ from personal cards, however. One major one is that personal card accounts are only reported to the consumer credit bureaus (Experian, Equifax, and TransUnion). Business accounts, on the other hand, may be reported to commercial credit bureaus (Experian or Dun & Bradstreet), as well as the consumer bureaus. Business credit cards also typically have higher spending limits than personal cards. In addition, any bonuses offered may be more geared toward business use.
Reasons to Get a Business Credit Card
Having a business credit card offers a number of advantages. These include:
Access to working capital: A business’s income and expenses don’t always align. A business credit card can cover expenses while you’re waiting to receive income, either through sales or invoices.
Build your business credit score: As you make on-time payments on your card, you will be building a business credit history that is separate from your personal credit history. This could help you qualify for more business financing opportunities in the future.
Earn rewards: Some business credit cards offer perks, such as points, miles, cash back, gift cards, extended warranties on purchases, and travel accident insurance. Some even offer a welcome bonus for signing up.
Keep business and personal finances separate: Having a dedicated business credit card for your business expenses maintains an important separation between your business’s financials and your personal finances. This makes things easier come tax season and, if you are able to open a card using just your business’s Employer Identification Number (EIN), can help protect your personal finances from any potential financial or legal trouble that arises with your business.
Emergency financing: Having a business credit card in your back pocket can serve as a financial safety net in the event that you need to cover unexpected business expenses.
To help find the best business credit card for your needs, follow this step-by-step guide.
1. Do Your Research
There are a large number of business credit cards available, so you’ll want to shop around and consider all your options before choosing a credit card. If you’re a start-up or you need to make a large purchase, you may want to investigate cards that offer a 0% introductory period. If your business is more established, you may want to look for a card that offers rewards that align with your spending, such as cash back for general purchases or travel rewards.
2. Select the Right Card for Your Business
Once you’ve pinpointed several cards that could be a good fit for your business, you’ll want to review rates and credit card terms, including the annual percentage rate (APR), annual fees, cash advance fees, foreign transaction fees, and late fees. If you’re working on building your business credit, make sure that the card reports to business credit-reporting agencies. You’ll also want to make sure that you meet the credit card qualification requirements. Applying for a credit card results in a hard credit inquiry (which can temporarily impact your scores), so you’ll want to minimize the number of cards you apply for. If you’ve received a pre-approval for a credit card in the mail, it likely means that you meet the issuer’s minimum qualifications.Recommended: Guide to Credit Card Fees
3. Check Your Credit Scores
If you have been in business for three or more years, you may qualify for a business credit card using just your business’s EIN. In most cases, however, you’ll be applying for a business credit using your own Social Security number, which means issuers will check your personal credit score as well as your business credit score. For this reason, it’s a good idea to check these scores to make sure they are in good shape before you apply for a card.
4. Get All Necessary Documents
When you’re ready to move forward with a card, the next step is to gather all the information that will be needed as part of your application. This often includes:
Business name and contact information
Tax ID number or EIN
Social security number for yourself and any business partners who own 20% or more of your company
Your incorporation documents (to confirm the number of years you’ve been in business)
Recent financial statements that show your revenue and monthly spending estimates
A list of employees who will need cards
5. Apply for Your Business Credit Card
Now that you’ve compared credit card rates, pinpointed the business card you want, made sure your credit is in good shape, and have all the information you need at hand, it’s time to actually apply for the card. In many cases, you can do this online and it will only take a few minutes. An approval decision can take anywhere from several minutes to several days, depending on whether the issuer needs any follow-up information. If approved, you’ll get your card(s) in the mail, which you can then activate and start using.
Factors That Affect the Approval of Your Business Cards
Business Type and Size
Some business credit cards are reserved for large corporations that have dozens or even hundreds of cardholders and complicated security needs, while others are geared toward small businesses. Some will also work with independent contractors. When you apply, the application will ask you to indicate your entity type — either a corporation, partnership, nonprofit, limited liability company (LLC), government, or sole proprietorship. If you’re applying for a business credit card as a freelancer and haven’t registered your business with the state, then you would choose sole proprietorship.
Duration in Business
Some creditors require a minimum number of years in business if you want to apply for a business credit card without using your personal credit score as a factor. If you’re a new business, you can still apply. However, the creditor will likely require you to submit a Social Security number in order to run a personal credit check.
Business Revenue and Expenses
Card issuers will typically want to know your annual business revenue, as well as your estimated monthly spend on the card. This is to make sure that your revenue can handle your monthly credit card payments. The issuer will also use your revenue and expected expenses to determine the size of your credit line. If you’re looking for a business credit card for a startup, and don’t have any revenue to report, the card issuer will consider your personal annual income instead.
Availability of Personal Guarantee
You may be asked to provide a personal guarantee in order to qualify for a business credit card. This is a legal agreement stating that you will personally assume responsibility for the debt on the credit line if your business cannot make payments. If you must sign a personal guarantee, the only way to ensure that your personal finances are protected is to make all of your credit card payments on time and in full.
Personal Credit Score
If you've only been in a business for a few years, your application for a business credit card will likely hinge on your personal credit. This results in a hard inquiry on your personal credit report, which stays there two years and can cause a minor dip in your score for about one year. If your personal credit score isn’t high enough to allow you to qualify for a business credit card, a secured credit card could help build your personal credit to help you qualify in the future.
Compare Credit Cards With Lantern
Getting a business credit card gives you access to working capital, helps you build your company's credit history, and makes it easy to keep your business spending separate from our personal spending. If you’re interested in finding out what type of business credit card you might qualify for, Lantern by SoFi can help. With our easy online comparison tool, you can research the lowest interest rates and fees, and find the best rewards for your business.
Frequently Asked Questions
How do business credit cards work?
What are the benefits of business credit cards?
What businesses qualify for a credit card?
Photo credit: iStock/LaylaBird
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About the Author
Lauren Ward
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
