Business Credit Cards

Are you a small-business owner looking to boost your purchasing power, track expenses, and earn valuable rewards? Look no further than business credit cards! These financial tools are designed to cater specifically to the needs of small businesses, offering a range of benefits and advantages. In this article, we’ll explore the world of business credit cards, how they work, the different types available, and why they can be a game-changer for your entrepreneurial journey.

What are small-business credit cards?

Small-business credit cards are financial products designed specifically for entrepreneurs and small-business owners. They serve as a flexible and convenient way to manage business expenses, track transactions, and separate personal and professional finances.

These credit cards offer a variety of perks, such as rewards programs, cash back incentives, and travel benefits, tailored to meet the unique needs of small businesses.

How do business credit cards work?

Business credit cards function similarly to personal credit cards. Once approved for a business credit card, you’ll be given a credit limit that determines the maximum amount you can spend.

When you make purchases using the card, the credit card company pays the merchant on your behalf, and you’re required to repay the amount within a specified time frame.

To keep track of your spending and manage expenses effectively, business credit cards provide detailed monthly statements that outline all transactions. Some cards even offer advanced reporting tools and integrations with accounting software, simplifying financial management for small-business owners.

Types of business credit cards

There are several types of business credit cards available, each catering to different needs and priorities. Let’s explore some of the most common ones:

Corporate credit cards

Corporate credit cards are designed for larger organizations and corporations. These cards often come with robust expense management tools and features tailored for companies with extensive employee spending. Corporate credit cards provide centralized billing, allowing businesses to monitor and control expenses effectively.

Small-business cards

Small-business cards are the most common type of business credit cards. These cards are specifically designed for entrepreneurs and small-business owners. They offer a range of benefits, including rewards programs, cash back incentives, and flexible credit limits. Small-business cards are an excellent choice for startups and growing businesses that want to maximize their purchasing power and earn rewards on everyday expenses.

Cash back credit cards

Cash back credit cards are a popular choice for small-business owners who prefer simplicity and tangible benefits. These cards offer a percentage of cash back on eligible purchases, providing a straightforward way to save money. With cash back credit cards, you can earn money while spending on essential business expenses, making them a valuable asset for cost-conscious entrepreneurs.

Travel rewards credit cards

For business owners who frequently travel, travel rewards credit cards can be a game-changer. These cards offer a range of travel-related perks, such as airline miles, hotel discounts, and airport lounge access. By using a travel rewards credit card for your business expenses, you can accumulate points or miles that can be redeemed for future business travel, saving you money and enhancing your travel experience.

Why open a business credit card for your small business?

Now that we’ve explored the different types of business credit cards, let’s dive into the reasons why opening a business credit card can be a strategic move for your small business.

Increase your purchasing power

Business credit cards provide a higher credit limit compared to personal credit cards, giving you increased purchasing power for your business. This can be particularly advantageous when you need to make significant investments, restock inventory, or cover unexpected expenses. With a business credit card, you’ll have the financial flexibility to seize opportunities and grow your business.

Separate your personal and business expenses

Mixing personal and business expenses can lead to confusion and make tax reporting a nightmare. By using a business credit card, you can easily separate your personal and business finances. This separation simplifies accounting, ensures accurate financial records, and saves you time when filing taxes. It also helps build a solid foundation for establishing business credit, which can be vital for future funding and growth.

Earn rewards for everyday spending

Business credit cards often come with rewards programs that allow you to earn points, cash back, or travel miles on your everyday business expenses. Whether you’re purchasing office supplies, advertising services, or travel accommodations, you can earn valuable rewards that can be reinvested into your business. Imagine earning cash back on your marketing expenses or accumulating travel miles for your next business trip—business credit cards offer enticing incentives to make your spending work for you.

Establish business credit

Building a strong credit history is crucial for small businesses. By consistently using and responsibly managing a business credit card, you can establish and improve your business credit score. A solid credit history can open doors to future financing options, such as loans or lines of credit, at more favorable terms. It demonstrates your creditworthiness and financial responsibility to lenders and partners, helping your business thrive.

Get affordable short-term financing

Small businesses often encounter situations where they require short-term financing for various needs, such as bridging cash flow gaps or taking advantage of growth opportunities. Business credit cards can serve as a convenient and cost-effective solution for these scenarios. Instead of resorting to high-interest loans or other forms of financing, you can use your business credit card to access the necessary funds quickly and pay them back within the interest-free grace period, saving your business money.

Operate a sole proprietorship

If you’re a sole proprietor, using a business credit card is essential for separating your personal and business expenses. It helps you maintain clear financial records and simplifies tax reporting. Additionally, having a business credit card in the name of your business adds credibility and professionalism to your venture when dealing with clients, suppliers, and other stakeholders.

Use points or miles to cover business travel

If your business involves frequent travel, a business credit card with travel rewards can be a significant advantage. By using your business credit card for travel expenses, you can accumulate points or miles that can be redeemed for flights, hotel stays, or other travel-related expenses. This allows you to offset the costs of business travel, saving your business money and enhancing your overall travel experience.

Track and earn rewards for employee spending

If you have employees who make business-related purchases, many business credit cards offer employee cards at no additional cost. This allows you to provide your employees with the means to make necessary purchases while maintaining control and oversight. Furthermore, you can earn rewards or cash back on their spending, maximizing the benefits for your business.

What you need to apply for a small-business credit card

To apply for a small-business credit card, there are a few key requirements you’ll need to meet. These may vary slightly depending on the credit card issuer, but generally, you’ll need the following:

  1. Business information: You’ll need to provide details about your business, such as its legal structure (sole proprietorship, LLC, partnership, etc.), industry type, and annual revenue.
  2. Personal information: As the business owner, you’ll also need to provide your personal information, including your Social Security number, date of birth, and personal income.
  3. Business documentation: Depending on your business structure, you may need to submit supporting documents, such as your Employer Identification Number (EIN) for LLCs and partnerships or a Doing Business As (DBA) certificate for sole proprietors.
  4. Financial information: You may be required to provide financial details about your business, such as your bank statements, profit and loss statements, or tax returns. This information helps the credit card issuer assess your creditworthiness and determine the appropriate credit limit.
  5. Personal credit history: While small-business credit cards are primarily based on your business’s creditworthiness, your personal credit history can also be a factor in the approval process. A strong personal credit score demonstrates financial responsibility and may increase your chances of approval.

Remember to carefully review the requirements of the specific credit card you’re interested in to ensure you have all the necessary documentation and information before applying.

What LLCs should look for in a business credit card?

As an LLC (Limited Liability Company), there are specific factors you should consider when choosing a business credit card. Here are some key features to look for:

High introductory bonuses

Many credit card issuers offer attractive introductory bonuses, such as cash back or travel points, to new cardholders. Look for cards that provide generous sign-up bonuses that align with your business’s needs and spending patterns. These bonuses can provide a significant boost to your rewards balance right from the start.

0% interest introductory rates

If you anticipate carrying a balance on your credit card, particularly during the early stages of your business, look for cards that offer 0% interest introductory rates. These periods typically range from 6 to 15 months, during which you won’t accrue interest on your balances. This feature can help you save money on interest charges and manage your cash flow more effectively.

Rewards that meet your needs

Consider the rewards programs offered by different credit cards and choose one that aligns with your business’s spending habits. If you frequently travel for business, prioritize cards that offer travel rewards, such as airline miles or hotel discounts. On the other hand, if you prefer cash back or statement credits, look for cards that provide competitive cash back percentages or flexible redemption options.

Employee cards at no additional cost

If your LLC has employees who make business-related purchases, having the option to provide them with employee cards at no additional cost can simplify expense tracking and streamline your financial management. Look for business credit cards that offer this feature, allowing you to delegate spending responsibilities while maintaining control over your business’s finances.

In conclusion, business credit cards can be invaluable tools for small-business owners. They offer numerous benefits, including increased purchasing power, expense tracking, rewards programs, and the opportunity to establish and build business credit.

By understanding the different types of business credit cards available, considering your specific needs as an LLC, and selecting a card that aligns with your business goals, you can unlock opportunities and take your business to new heights.

Got a Question?

Yes, as a sole proprietor, you can apply for a business credit card. It’s an excellent way to separate your personal and business expenses, simplify tax reporting, and build business credit.

While business credit cards primarily focus on your business’s creditworthiness, some issuers may consider your personal credit history during the approval process. However, your business credit card activity generally doesn’t impact your personal credit utilization or credit score.

It’s recommended to keep your business and personal expenses separate. However, some small-business owners may use their business credit card for occasional personal expenses. It’s important to keep a clear record of which expenses are business-related and pay off any personal charges promptly.

Personal credit cards are intended for individual use and primarily based on the cardholder’s personal credit history and income. Business credit cards, on the other hand, cater specifically to small businesses and offer features such as higher credit limits, expense tracking tools, and rewards programs tailored for business needs.

Yes, you can apply for multiple business credit cards for your business, depending on your needs and creditworthiness. However, it’s important to manage your credit responsibly and avoid excessive debt. Consider your business’s financial capabilities and the benefits offered by each card before applying.

An LLC itself does not have a credit score. However, the creditworthiness of the individuals associated with the LLC, such as the owners or members, will impact the initial credit opportunities for the LLC.

It is generally more common to obtain a business credit card after forming an LLC. Business credit cards are typically issued to legally established businesses, such as LLCs, corporations, or partnerships.

While not all credit card issuers require an Employer Identification Number (EIN), many do. An EIN is often requested during the application process for a business credit card, especially for LLCs and other business entities.

To get a credit card in your business name, you will need to establish a legal business entity, such as an LLC. Once your business is established, you can apply for a business credit card using your business’s name and relevant information.

Yes, it is generally considered improper and potentially illegal to use a business credit card for personal expenses. Business credit cards should be used exclusively for business-related purchases to maintain clear separation between personal and business finances.

Yes, a single member LLC can build business credit. By establishing separate business accounts, such as a business bank account and a business credit card, and consistently demonstrating responsible financial behavior, the single member LLC can establish and build its own business credit profile.

No, an Employer Identification Number (EIN) does not have a credit score. An EIN is a unique identification number assigned to a business entity by the Internal Revenue Service (IRS) for tax purposes. The creditworthiness of a business is evaluated based on the business’s credit history, not the EIN itself.

Yes, you can use your EIN number to apply for credit. Many business credit applications require the use of an EIN to identify the business entity. It helps establish credit in the name of the business rather than relying solely on personal credit.

To build credit with an EIN, you can take several steps:

  • Establish a legal business entity, such as an LLC or corporation.
  • Obtain an EIN from the IRS for your business.
  • Open a business bank account in your business’s name and use it responsibly.
  • Apply for a business credit card and make timely payments.
  • Establish trade credit by working with vendors and suppliers who report payment history to business credit bureaus.

Monitor and maintain a good payment history with all your business obligations.