Can You Get a Business Credit Card Before You Open Your Business?

Susan GuilloryUpdated October 25, 2022

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A business credit card offers a number of advantages over a personal one, such as rewards for business spending and higher credit limits. Having one of these cards can also help you build business credit when you’re just starting out. But is it one of those catch-22s, where you can’t get a business card until you have a business?Not necessarily. To get approved for a business credit card, you generally need to be earning some type of independent income. However, you don’t need to already have a business. Here’s a closer look at how business credit cards work, their pros and cons, and how to get one even before you officially open a business.

What Is a Business Credit Card?

Business credit cards are similar to personal credit cards except they are more geared toward business owners and people who have business-related expenses. They typically come with higher credit limits than personal cards, and structure their rewards around business-related spending, such as travel, dining, and office supplies. Unlike personal credit cards, which only report your payment history to the consumer credit bureaus, business accounts primarily report to the commercial credit bureaus. As a result, getting and using a business credit card can help you build a business credit profile, which may help you qualify for other types of business financing in the future.

How Business Credit Cards Work

Business cards work in a similar way to personal cards. You get a maximum spending limit, or credit line, and can charge expenses to the account up to that amount. You also have a minimum payment due each month. As you pay off your balance, your available credit is replenished. If you carry a balance from one month to the next, you will typically pay interest on that balance.The best business credit cards offer rewards, such as travel points or cash back, for spending in certain categories. Many also offer business-centric tools to track your business spending. In many cases, expense information can be downloaded and easily imported into your business accounting software. Business cards may also allow you to get free cards for employees and set individualized spending limits.

Qualifying for a Business Credit Card

Anyone who operates a business can apply for a business credit card. This includes any type of business structure, including a sole proprietorship, partnership, corporation, or limited liability company (LLC). Also, you don’t need to have an existing business credit history before you can apply. Business credit card issuers will look at your personal credit history and credit scores. If you do have a business credit history, they will likely look at both your personal and business credit.Whatever your business set-up, you will likely need to provide information about your business when you apply for a business card, including how long you’ve been in business, the industry you’re in, and your annual business income, plus provide supporting documents.

Are You a Business Owner or Independent Contractor?

You don’t have to be a registered LLC or corporation in order to apply for a business credit card. You can be an independent contractor, or simply have a side hustle. As long as you earn money from the work you do, you may be able to qualify for a business credit card.

Do You Have an EIN or SSN?

When filling out an application for a business credit card, there is typically a section asking what kind of business you have and a space to put your business tax identification number. If you own a business, you can put in your employer identification number (EIN). If you’re a freelancer, you can choose to answer that you're a sole proprietor. Generally, you can enter your Social Security number as your tax ID number.Recommended: Sole Proprietorship vs. LLC: How to Choose

Pros and Cons of Business Credit Cards

While you may be able to get a business card without owning a business, the question remains: Should you? Here’s a look at the pros and cons of getting a business card.

Pros	Cons
Keeps your personal and business finances separate	Often charge an annual fee
Higher credit limit	Fewer consumer protections
Can help you build business credit	Your personal credit may be affected
Business-related rewards and perks	May have to sign a personal guarantee

Pros

One of the biggest benefits of a business credit card is that it allows you to keep your personal and business spending separate, which can dramatically simplify your life come tax time. In addition, using a business card can help you build business credit, which can help you if you decide to apply for a business loan down the road.Another plus is that business cards typically come with higher credit limits than personal credit cards. This is because issuers generally consider both your income and the business’s revenue when determining the credit limit. They will also likely consider both your business and personal credit scores. A higher limit could be useful if your business has steep operating costs, such as high inventory expenses each month.Many business cards also offer bonus rewards for business-related spending, such as phone bills, online advertising, or office supplies. They may also provide tools that can help you better manage your company's finances, such as integration with your accounting software and year-end itemized spending reports.

Cons

Business credit cards with generous rewards typically charge an annual fee. So, it will be up to you to decide if the benefits outweigh the cost. Also keep in mind that business cards generally come with fewer legal protections than personal cards. The CARD Act of 2009 gave a number of consumer protections for personal credit cards, such as limitations on interest rate hikes and fees and prevention of double-cycle billing. Business card issuers often offer these protections as a courtesy, but they may not in every case.Though business cards are for business spending, they can still affect your personal credit. When you apply for a business credit card, the application will likely show up as an inquiry on your personal credit report, which can temporarily cost you a few points on your credit scores. In addition, some business card issuers will report your account payment history to both the consumer and commercial bureaus. Also be aware that you will likely have to sign a personal guarantee when you get a business card, which means you will be personally responsible for repaying that debt should your business run into financial trouble.

Alternative Forms of Business Credit

Business credit cards offer a number of perks and can be a convenient way to pay for business expenses. However, they aren’t your only option for business financing. Here are some others to consider.

Small Business Loans

Banks, credit unions, and online lenders offer all types of small business loans. While banks and credit unions typically require at least two years of business history to qualify for a loan, online lenders often have more flexible requirements. These alternative lenders also tend to offer easier applications and faster financing. However, funding amounts may be smaller and interest rates are typically higher.

Equipment Financing

If you’re planning to purchase equipment for your business, you may be able to qualify for equipment financing without already having a business. Because the equipment you’re buying serves as collateral for the loan, this type of financing is less risky for lenders. If you can’t pay the loan, the lender can seize the equipment to cover your debts.

Merchant Cash Advances

If your business generates credit or debit card sales, you may be able to get a merchant cash advance (MCA). With this type of financing, an MCA provider gives you an advance on future business sales, then automatically deducts a daily (or weekly) percentage of your debit and credit card sales until the advance is repaid, with interest. MCAs can provide quick capital to cover cash-flow shortages or short-term expenses, but generally carry a high interest rate.

The Takeaway

Business credit cards can make it easier to manage business expenses and are available to all types of businesses, including sole proprietors. Business cards typically offer business-friendly features, like higher spending limits, bookkeeping tools, and bonus rewards for business-related spending. However, they often come with annual fees and may require signing a personal guarantee.If you’re curious about what other types of business financing you might qualify for, Lantern by SoFi can help. With our easy online comparison tool, you can quickly access small business loan offers matched to your needs and qualifications.

Frequently Asked Questions

Can you get a business credit card if you don't have a business?

Is qualifying for a business credit card easier than for a personal one?

Do business credit cards have to have a name on them?

Photo credit: iStock/dragana991

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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