What You Need to Know Before Applying for a Business Credit Card

It’s been said before, but it certainly bears repeating – credit is the small business owner’s best friend. As we all know, cash flow can be unpredictable at the best of times and having access to credit ensures that you’ll be able to maintain optimal stock levels, meet your payroll obligations, and pay your vendors on time. In short, credit goes a long way towards helping businesses stay on track so they can compete and grow in a crowded marketplace. 

For many small business owners a credit card offers the financial flexibility they need to keep their enterprise running smoothly. Unfortunately, all too often it’s their personal credit card that is being pressed into service. But using a personal credit card for business purchases can be a costly mistake, and can lead to trouble and confusion down the line. On the other hand, business specific credit cards offer the spending power small business owners need while delivering some very attractive perks and incentives. 

The Benefits of Having a Business Credit Card 

Obviously, it’s possible to run and maintain a smallish business while using a personal charge card to cover some or all of your operating expenses. Many small-scale enterprises and new start-ups are often managed in just such a fashion. However,  as your business grows and you begin taking on more employees and start to forge more lucrative and varied business relationships it makes more sense to keep your personal and business-related spending separate. 

But beyond simply keep the company ledgers tidy, there are some significant benefits to having a business specific credit card. 

• Easier Record Keeping – Having a company charge card helps to set distinct boundaries between your personal and business-related spending. This is particularly important when tax time rolls around. If your personal and professional expenditures are muddled together it’s going to be more difficult to accurately assess your tax obligations. Keeping your accounts separate will reduce the headache for you and your accountant. Keeping business and personal accounts separate will also make it easier to apply and qualify for future bank loans.
• Short-Term Borrowing – Quite often small businesses have to contend with inconsistent income levels. One month is up while the next month may be down. It’s simply the nature of the beast. Meanwhile, bills have to be paid on time. Having a business specific credit card gives you quick access to short-term loans so you can meet expenses when your short of ready cash. Of course, you’ll want to be sure to pay off your balance by the due date to avoid any unnecessary interest.
• Build Up Your Credit Profile – It’s estimated that 45% of all small business owners aren’t aware that their company has a dedicated credit score, and nearly 72% don’t know how to access or interpret that report. A company’s credit history is one of its most valuable assets, and can determine eligibility for loans, interest rates on those loans, and cost and availability of insurance. Improving your company’s credit score is one of the more important benefits of having a business specific credit card.
• Business Related Rewards and Benefits – Just like personal charge accounts business credit cards often offer perks and reward programs for cardholders. Typically, these will be tailored to the specific needs of business owners. For example, you may be able to claim cash back on certain business-related expenses such as travel, advertising, and shipping costs.
• Business credit cards also typically offer higher spending limits than personal charge accounts, as well as fraud and purchase protection benefits that can ward off financial trouble if a card is lost or stolen.

Who Can Apply for a Business Charge Card? 

Banks have strict policies regarding the issuing of business specific credit cards, and account applications must be made by an ‘authorized company’ officer. According to CitiCards.com, an authorized officer is any one of the following: 

• Owner (sole proprietors with an LLC fall under this category)
• General Manager
• General Partner
• President or Chairperson
• Vice President
• Treasurer

What You Will Need to Complete Your Application 

As with any credit application, your chosen lender will need to collect some specific information about you and your company before they can consider issuing a business charge account. In most cases this information will relate to the business itself, but if it is a young company or new a start-up you should be prepared to provide details about your own financial history. 

The following information will be needed to complete most business credit applications: 

• Full Legal Business Name
• Business Address
• Owner’s Legal Name
• Owner’s Primary Address
• Type and Manner of Business
• Employer Identification Number (if you are operating as a sole proprietor substitute your social security number here)
• Business History (years in operation, financial statements, tax history, etc)
• Number of Employees

3 Points to Consider Before Applying for Your Card 

Now that you know a little more about the benefits of having a dedicated business credit card, and just how easy it is to apply for an account, there are a few key points to consider before you start sending out applications. 

1. Rules and Regulations – Business credit cards are not the same as personal credit cards. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 set down new rules for credit card issuers. These were primarily designed to protect cardholders from abusive lending practices, reduce the occurrence of unexpected fees, and provide card users with full disclosure of costs and penalties.
   Business credit cards are exempt from this federal law. Some banks and lending institutions do apply these guidelines to their small business credit cards. However, that’s not true of all lenders. Read your credit contact carefully before signing any agreements.
2. Your Personal Credit History – As a business owner your personal credit history will help determine whether or not your qualify for a business specific credit card. When you apply you credit score will receive a hard inquiry. Take care not to apply for too many credit cards at one time or your personal credit score will be adversely impacted.
3. Promotional Financing – As with personal credit cards, banks offering business credit lines often offer promotional incentives to attract customers. These typically include free balance transfers, 0% APR financing on new purchases, or 0% interest for new applicants on their first year of service.
   These incentives can often be leveraged to a business’ benefit. However, it is important to understand the ultimate terms of your credit contract, as well as when and how your cardholder obligations will change after the promotional period is over. It’s all too easy to be swayed by overly attractive promotional offers only to be blindsided when your grace period is ended. Read the fine print.

 Finally – Compare Before You Commit 

If there is one rule that applies to all credit cards, personal and business, it is that applicants should always compare offers before they commit to any credit agreement. Research is critical. Consider a variety of different cards, and compare and contrast what is being offered. Review the interest rates, spending limits, and cardholder incentives until you find the card that best suits your business needs. 

Be judicious about which cards you apply for, and limit your applications to only those that meet your needs and for which you believe you will qualify. Remember, each application will result in a hard inquiry on credit score so don’t waste those hits on cards for which you are unlikely to be approved. 

Finally, before signing any cardholder agreement take the time to read all of the fine print. Make certain you understand the terms and conditions of the contract, as well as all of your obligations as a borrower. Only when you’re certain you’ve made the best choice for your business should you commit to the cardholder agreement.