As a new business owner, there are many reasons for using a business credit card to manage your company’s finances. A business credit card can make it easier to separate personal and business expenses, and often comes with a higher credit limit than personal credit cards. Plus, you can earn rewards and perks on everyday operating expenses.
While at first glance, it might seem overwhelming to choose from several different options, there are a few tips you can use to help find the right fit for you.
Use this guide to decide on the best business credit card for your new business.
What is a business credit card?
A business credit card is primarily used for business-related expenses. Like a personal credit card, you will need to make repayments each month and can earn rewards as you spend.
Using a business credit card for expenses related to your commerce can help you manage your finances and accounting while keeping personal expenses separate.
It can be harmful to use a personal credit card for your work-related expenses, as credit limits are lower, and you could exceed your maximum authorized limits with large business expenses. Plus, any problems can harm your personal credit report, which could make it more difficult to take out a personal loan or mortgage.
What are the pros and cons of getting a business credit card for new businesses?
When it comes to your everyday operating expenses, a business credit card can be a useful tool to help you manage your cash flow while you earn rewards and points on your expenses.
Here are some of the pros and cons:
- Keep personal and work-related finances separate: As a new business owner, finances can sometimes overlap and cause confusion. With a business credit card, you can manage and itemize your business expenses, which can be useful for tax reporting purposes.
- Cover cashflow shortfalls: During the early stages of a new business, cash flow can sometimes be unpredictable. A business credit card can help you cover any temporary shortfalls in cash flow.
- Build business credit score: Using your credit card responsibly and making on-time repayments can help your business build its credit profile. The credit score for your business is independent of your personal credit history.
- Earn perks and rewards: Business credit cards can have more enticing benefits than personal credit cards offer. There may be larger sign-up bonuses, discounted hotel rooms for business trips, and attractive introductory rates.
- Higher credit limits: A business credit card is likely to have a higher credit limit to account for larger operating expenses.
- Personal guarantee: The credit card provider will likely ask the applicant to act as a guarantor for your business credit card, where the applicant will be required to pay back any debt accrued if the business fails.
- Personal credit: Some credit cards for small businesses report to commercial credit bureaus whereas others report to both consumer and commercial bureaus. Misuse of your business credit card can affect your personal credit score when reported to consumer bureaus.
What are the best credit cards for new businesses?
When you’re getting a business credit card for a new business, it’s important to keep in mind the credit rating required, any fees and penalties imposed, and the interest rate. Here are some business credit cards for you to consider:
- Ink Business Unlimited® Credit Card: With a 0% introductory offer for purchases in the first 12 months and a $0 annual fee, you could earn $750 in cash back if you spend $7500 in the first 3 months of your account. There is no additional cost for employee cards and you can set spending limits for better control.
- United℠ Business Card: Offering 150,000 bonus miles when signing up, you can earn additional air miles for meeting the spending requirements in your first 3 to 6 months of opening an account. This credit card could be ideal for new businesses that are likely to travel frequently.
- Ink Business Preferred® Credit Card: While there’s a $95 annual fee, you can earn 100,000 bonus points when spending $15,000 on purchases in the first 3 months, equivalent to $1000 cash back.
- Southwest® Rapid Rewards® Premier Business Credit Card: Earn 60,000 points after you spend $3000 on purchases in the first 3 months and receive a low APR of 15-99% – 22.99% variable.
- Ink Business Cash® Credit Card: With an introductory 0% APR on purchases for 12 months, you could earn up to 5% cash back on the first $25,000 spent at office supply stores, internet, cable, and phone services each year.
Can you get a credit card for a new business with no credit history?
Many business credit cards require you to have a good to excellent personal credit score. While there are some options for business credit cards with no credit history available, the choice can be limited.
It may be a good idea to start with a secured credit card, to help you establish good credit and upgrade to a better business credit card later on. Alternatively, a prepaid business debit card could be an option to manage your finances until you are eligible for a business credit card.
How do I get a business credit card for a new business?
Applications for a business credit card can be completed online and a hard credit check is required. You may be asked to provide additional documentation depending on your business structure.
As a new business, your personal credit score will be a large factor in determining the outcome of your credit card application. It’s important to know your credit score before you go ahead with your application. A FICO score of 690 and above, indicating good to excellent credit is needed for many business credit cards.
If there are any errors on your credit report, be mindful to correct these before you apply, as this can hurt your chances of getting approved.
Tips for new business owners choosing a business credit card
Finding the best business credit card for your small business can be a time-consuming task.
Here are some tips to help you find the best business credit card for your needs:
- Calculate your business spending habits: Making a note of where you most frequently spend your business expenses can help you maximize rewards and choose a card that caters to your spending habits. If you’re likely to travel frequently, then a business travel rewards credit card could help you save more money in the long run.
- Annual fee: Many business credit cards come with an annual fee, however, a new business owner can add an extra expense. If your rewards are likely to offset the annual fee, it can be worthwhile paying for the credit card. However, if you have a smaller credit limit on your card, it may not be worth the fee.
- Rewards: Many business credit cards have attractive bonuses, and if you are likely to spend a lot of money in specific categories, then these cards might be for you. Other credit cards favor cash back rewards on purchases where you can typically receive between 1% – 5% on purchases. If you’re in the early stages of your business, it’s a good idea to think about what your spending patterns might be to make the most out of the rewards.
Business credit cards for new businesses without personal guarantee
Lenders require a personal guarantee to minimize the risk of your business failing. Business credit cards with no personal guarantee can be an attractive option if you don’t want to be personally liable for your business debt. This can help to keep personal assets and business assets separated as a credit card company cannot ask you for repayment if your business is unable to meet debt obligations.
Eligibility can be dependent on your business structure and each lender will have its requirements. Typically, sole proprietors are not eligible and new businesses can be considered as high-risk since they’re likely to have fewer assets and lower revenue. Therefore, you’re less likely to qualify as a new business owner and most business credit cards will require a personal guarantee.
How to make the most of your business credit card for your new business
The goal of your business credit card is to help you manage your work-related expenses and build a credit profile for your business. It’s important toavoid misuse. As the personal guarantor of your business credit card, any misuse where you fail to make payments on time or max out your credit line may be reported to consumer credit bureaus and impact your personal credit score.
Always pay on time and budget your expenses to avoid reaching the credit limit. If you do not pay off your balance every month, budget for the interest charges that can accrue and add up over time.
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