- Prerequisites for a business credit card.
- The Operation of Business Credit Cards
- Options for Bad Credit When Applying for a Business Credit Card
Answers to Common Questions (FAQs)
Consider obtaining a business credit card if you are a small business owner. With more purchasing power, you may finance the products and services your firm requires, maintain financial segregation between business and personal expenses, and simplify the tax reporting process. Understand the requirements for obtaining a company credit card in order to profit from its operational and financial advantages.
Important lessons learned
You may finance your company’s demands and keep your personal and business costs separate with the use of a business credit card.
You are personally liable for the entire amount outstanding in the event that the firm is unable to make payments, as required by the majority of business credit card lenders.
Although there are many similarities between company and personal credit cards, business accounts are exempt from most of the Truth in Lending Act’s (TILA) requirements.
To make sure you get a credit card that best suits your needs, you should carefully evaluate business credit cards.
In case your credit is not ideal, you might consider applying for a secured business credit card.
Conditions to Apply for a Business Credit Card
The requirements for business income, credit score, and other variables will vary depending on the lender. But before approving a loan, a credit card provider will typically check your personal and business credit reports—especially if your company doesn’t yet have a credit history of its own. If the firm is unable to pay, the majority of business credit card companies will additionally demand a personal guarantee, which makes you personally responsible for any unpaid balance or outstanding debt.
The Operation of Business Credit Cards
Credit cards for businesses and individuals have a number of things in common. If accepted, you’ll receive a revolving credit line that you can utilize to pay for unforeseen company expenses. Additionally, as with your personal cards, you must:
Paying your bills on time will demonstrate responsible account management. If you don’t fall within an interest-free promotional period, you must pay interest on any balances that you carry over from month to month.
Take note
Your company credit card may be used for a variety of charges, so it’s critical to get cards that give points and cash-back incentives for things like shipping and travel expenses.
The Truth in Lending Act (TILA) does, however, only apply to business accounts under specific circumstances, which is a significant contrast between business and personal credit cards. The purpose of the TILA is to make sure that lenders inform customers of the conditions and expenses associated with obtaining credit. Fortunately, business owners are protected by two significant legal safeguards. A card cannot be granted to you unless you specifically request one, and in the event that your card is lost or stolen, you will not be liable for any fraudulent purchases that exceed $50.1.
Although applying for a company credit card could seem overwhelming, you can navigate the process with the aid of the steps listed below.
Examine Your Credit
It’s crucial to first review your personal credit report and make any necessary corrections. Inaccurate personal information, account status, balance, and credit limit are just a few examples of the mistakes that may be found.
By going to AnnualCreditReport.com, you may obtain your report for free from each of the three major national credit bureaus.
If you find a mistake, dispute the information in a letter to the reporting lender and the credit bureau. Don’t forget to attach any supporting documentation for your claim. If the error isn’t corrected, you have the opportunity to file a complaint with the Consumer Financial Protection Bureau and your dispute will be looked into.
Take note
You may raise your credit score and improve your chances of being granted a business credit card by identifying and correcting errors.
Options for Research Cards
The next step is to investigate and contrast the various business credit cards that are accessible as there are a lot of them on the market. The following are some of the factors to think about:
- Kind of card (low-interest, secured, unsecured, etc.)
- Rate of interest per year (APR)
- initial interest rate
- interest rate promotion
- Fees (such as cash advance, foreign transaction, yearly, late payment, etc.)
- Awards (points, cash back, hotel stays, airline miles, etc.)
- Qualifications (credit score, revenue from business, etc.)
- Credit reporting: To enable you to establish credit that is distinct from your personal file, the card should ideally report to business credit agencies.
Consider the demands and objectives of your business when deciding which card to apply for. A credit card with no annual fee and a low interest rate can be your best option if you’re trying to save every cent and think you might have to carry a balance. However, a credit card that accrues airline miles or hotel stays can be ideal for you if you frequently travel for business purposes.
Make a Card Application
It’s time to apply after you’ve determined which business credit card is best for your organization. Every issuer will have a unique application form, and in order to make a determination, it will need different information. You should be ready to supply a variety of personal and business data, though, such as your federal tax ID, business kind, length of operation, annual revenue, and personal annual income as well as your personal credit score.
Choices for Individuals with Bad or Limited Credit
You might still be eligible for a business credit card even if your credit history isn’t very good or doesn’t exist at all. To improve your chances of approval, you might co-sign the application with a business partner who has excellent credit. If it’s not a possibility, nevertheless, take into account the alternatives listed below.
Safe Credit Card
Because you must provide the bank with a security deposit (hence the name) in order to start an account, secured credit cards are usually easier to qualify for. The amount of your security deposit serves as your credit limit. You can make purchases using the card once it has been accepted.
On-time payments build your credit record and show that you are a responsible financial citizen. In the event that you carefully manage the account for an extended period of time, the bank might convert you to an unsecured credit card, meaning you won’t need to provide collateral.
Take note
The issuer of a secured business credit card has the right to keep your security deposit if you don’t make payments on time or default.
Credit to Vendor
You might also submit an application for vendor credit to enhance your cash flow and credit position. Under this agreement, your vendor provides you with products and services now, with the assumption that you will pay for them within a predetermined net time. You won’t be assessed interest as long as you make your payment inside that window of time. In essence, you are given an interest-free loan with a limited repayment period.
It is likely that your dealer will check your credit before approving your application. However, if you pay your invoices on schedule (or early) for a considerable amount of time prior to application, you will raise your chances of receiving a “yes.” Additionally, you can demonstrate your ability to take the duty by starting with a very short net term—say, 10 or 20 days. Then, your list of active vendor credit agreements can make it easier for you to be approved the next time you apply for a business credit card.2.
Answers to Common Questions (FAQs)
Without a personal guarantee, is it possible to obtain a company credit card?
Although it’s not common, you might be able to obtain a corporate credit card without a personal guarantee. A majority of credit card companies will demand one. In this manner, the lender may pursue payment from you directly if your company is unable to pay the loan for any reason. Some company credit card alternatives, meanwhile, do not demand this guarantee.
Which company credit card is the simplest to be approved for?
A secured credit card is the easiest to be approved for as a business creditor. Because you have to provide a security deposit to cover the account balance with your own funds, a secured credit card carries a lower risk for the lender. Additionally, the credit card company may deduct your security deposit from your payment if you default.