Many of our past blog posts have focused on topics related to business financing – from preparing to apply for a loan and loan options, to what banks look for when evaluating potential borrowers, and much more. But what happens when you’re a small business owner who needs to make purchases to fund your growth, manage short term inventory or pay suppliers but don’t want to tie up cash or take out a business loan? Consider applying for a business credit card, a loan of a different type. A business credit card is ideal when you want to better manage cash flow, improve your accounts payable process or refine your accounting practices.
Why a business credit card?
- A business credit card provides ongoing access to credit and can be easier to apply for than a loan. Applying is a pretty simple process, requiring less information than is necessary when applying for a loan or line of credit. You may also be able to earn rewards just as you would on a personal credit card. Frequent purchases can accumulate points, airline miles, hotel stays, cash back, or other benefits that can be redeemed to benefit your business.
- Having a business credit card allows you greater control with employee spending. If your employees have the need to make purchases for items like supplies, gas, food, etc., you can have multiple cards and control the limits while reviewing spending. This provides greater control of expenses, which can lead to increased profits.
- Business credit cards often come with higher lines of credit than personal cards, which can help a small business really get off the ground. Just remember to make every effort to pay the bill in full every month or you’ll incur interest fees which could end up hurting you in the long run.
Is my business large enough to qualify for a business credit card?
It’s a misconception that you need to be an incorporated business with a Federal ID number to apply for a business credit card. In reality, many small businesses start as DBAs (Doing Business As) and are able to qualify for a card. For example, if you start a small Etsy store and want to keep those purchases separate from your personal finances, you may benefit from a business credit card.
Can’t I just use my personal credit card?
A lot of small business owners use their personal credit cards to make purchases on behalf of their business. While it’s okay to turn to your personal cards in a pinch, it’s best not to make it a regular occurrence. When you apply for a business card, you’ll take a small hit on your personal credit score, since banks use it to check your credit and these cards are still personally guaranteed. Once you’ve opened and used your business card, however, that line of credit remains separate from your personal credit reporting and should no longer affect your personal credit score.
Having a business card can also help you establish a business credit history, which can be helpful in the future when it comes to applying for larger loans. Banks will look at your business credit when determining your interest rate, and the more established your business credit, the more likely you are to be approved and the better rates you’re likely to get.
Mixing your personal and business purchases may also create a challenge come tax time, as you or your accountant will need to separate the business expenses from the personal ones, potentially costing you more time and money in tax preparation. By using a business credit card for your expenses, you can easily track your expenditures while protecting your personal credit.
How do I apply for a business credit card?
To find out whether you qualify, and to determine which card would be best for your business, contact a Cash Management Specialist at Investors Community Bank.
There are a number of reasons to get a credit card for your business beyond simply to help alleviate temporary cash strains. A business credit card can be a valuable tool that helps you manage cash and even build good credit (and could even keep you out of tax trouble), so don’t hesitate to talk to your banker to get the application process started.
If you’re a small business owner, you also need to be aware of and prepared for the possibility of bank fraud and cybercrime. Learn how you can protect yourself and mitigate losses by downloading our resource, Cybercrime & Bank Fraud: Tips for Protecting Your Business now!