Credit is a powerful tool for any business owner looking to expand and grow their enterprise. Choosing a business credit card for your venture can provide access to a valuable line of capital but as with all credit, it is vital you fully understand the ins and outs of the decision and select the best card for your circumstances.
The Federal Reserve reported small business debt is on the rise as there was a 9.1% increase in the amount of debt being taken by businesses over a year. It is vital, therefore, to explore your options and fully assess your business needs before choosing the most appropriate credit card. Here are 7 things to keep in mind before getting your first business credit card.
1. Business Credit Is Not The Same As Personal Credit
Almost all Americans have credit scores and credit histories which are linked to their personal details and can include details on everything from personal loans to your promptness when paying utility bills. Business credit is not quite the same.
Business owners can access a new form of credit specifically available because they run and operate a business. Your business credit profile shows potential lenders and credit card companies how responsible your business is. Card issuers may look at your personal and business credit records and will consider this history when deciding if you qualify for a business credit card and also the credit limit on it.
Small business owners with no business credit history may find their options are limited but as you build up your credit history, you may become eligible for cards which offer a wider range of rewards and incentives.
2. Businesses Do Not Have To Be Registered Or Incorporated To Get A Credit Card
Whatever the size of a business, there are business credit options. You don't have to have a registered or incorporated business to apply and be eligible for a credit card, as even sole proprietors and small businesses can qualify for a business credit card. It is not essential to have an Employer Identification Number (EIN), but having one can make it easier for businesses to establish credit.
Keep in mind that applying for a business credit card when your company isn't incorporated or registered means you are 100% personally liable for debts relating to the business card.
3. Business Credit Cards Are Only As Good As Their Users
Getting a business credit card is a commitment you should only make if you have the right setup, and are committed to using it responsibly for the benefit of your business. Before searching for the best business credit card for your needs, consider some key questions.
1. Are you planning to use the card to better manage inventory and business finances? Consider a credit card that offers purchase protection and cashback.
2. Do you travel a lot for business or have high expenses? Look for a card that comes with travel incentives.
3. Do you need to build your credit and are just getting started with business credit? Find a credit card that has no or minimal annual fees.
These are just some of the questions to ask so you can ascertain the type of credit card you need and how to plan to use it. It is also important to keep in mind the importance of managing your credit card balance and using it responsibly for your business.
“Undoubtedly, a business credit card offers numerous benefits, from cashback rewards to helping with cash flow management. But to fully maximize the benefits and avoid any potential pitfalls, businesses must prioritize making timely payments. By using a business credit card responsibly, businesses can access lower interest rates, higher credit limits and reduce interest expense.”
David Luck, Co-founder and CEO of Capital on Tap
4. Business Credit Cards Do Not Have The Same Liability Protections As Personal Cards
Business credit cards and personal credit cards may have similar liability protections, but there can be differences depending on the specific terms and conditions of the credit card issuer and the type of business card you have. Make sure to fully check the terms and conditions before applying for any card.
5. Business Credit Cards Have Their Own Payment Terms
Personal credit card providers will offer their own payment terms, and they are largely quite similar. However, your business credit card’s terms may differ from what you’re used to so it is important to be careful and check every detail relating to payments, interest rates, and related charges. Card issuers often recognize that business owners are not always able to instantly access the large amounts of cash needed for business purchases and may allow for special payment terms in certain circumstances.
6. Business Cards Have Great Rewards Too
One of the main drivers behind business credit cards is the incentives and perks that come with your new credit line. Many of the perks that come with business credit cards are closely linked to business expenses so you can reap multiple rewards for your business. From credit cards offering cashback to those with travel rewards, you can explore the options available and select the one that is most suitable for your business.
7. Business Credit Cards Can Make Your Accounting Easier
Accounting is not many small business owners’ favorite task, but it is essential. Business credit cards can help to make accounting easier, and responsible credit card use helps to make planning and forecasting more straightforward. Large corporations can also opt for employee business credit cards, making it much simpler to keep track of expenses and avoiding the extra work of having to collect receipts and reimburse employees on a case-by-case basis.
Credit Card Conclusion
A business credit card can be a powerful tool for accessing more capital for the development and day-to-day running of your business. Fully understanding the above points is vital to get the most from your credit card and to ensure it is the best option for your business. Responsible card use is vital if you want to make the most of your business credit.
