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As a small business owner, you have a lot on your plate. Between your business and personal life, balancing it all is no easy task, let alone keeping everything organized. One solution many small business owners turn to is applying for a business credit card.
A business credit card can simplify finances while building business credit—a smart move in establishing your business and supporting its long-term success. Here’s what you can expect if you want to apply for a business credit card:
- Research application requirements
- Order your personal credit report
- Compare business credit card options
- Read the fine print
- Complete your online application
- Keep your business credit in good shape
If you’re just starting out and don’t have any business credit yet, it’s still possible to get a business credit card. Instead of analyzing your business history, the banks will examine your personal credit history. Having a good personal credit history will make it easier to qualify.
7 business credit card requirements to know before applying
You don’t need a large amount of revenue, a team of employees or even a full-time business to qualify for a business credit card. The process is similar to applying for a personal credit card, with a few differences. Here are the requirements when you apply:
1. Full legal business name
Straightforward but necessary, this is simply the name of your business. This is what will appear on the credit card if you’re approved. Use the business name you originally registered with the state, or just your legal name if you’re a freelancer.
2. Business type/structure
Is your business a corporation, nonprofit or sole proprietorship? You’ll be asked to indicate this in your application. If you’re a freelancer, you’ll typically choose sole proprietorship. It’s important to note that if your business has any beneficial owners—anyone who directly or indirectly owns at least 25 percent of the business—you’re required to provide basic information on those individuals as well for record-keeping purposes. This might include things like their address, birth date and Social Security number.
3. Industry type
You’ll be asked to include the industry your business operates within, chosen from a provided list. Select the one that best describes your business—it’s okay if it’s not an exact match.
4. Annual business revenue
It’s no surprise that credit card companies want a report of how much money your business brings in each year. They need to ensure that your annual revenue is sufficient to cover your credit card payments. If you’re brand new and don’t yet have an annual revenue, your personal income will likely be verified instead.
5. Years in business and number of employees
You’ll be asked how long you’ve been in business and how many employees you have. If you haven’t been in business for a full year, you can put “zero.” If you’re a team of one and don’t employ anyone else, you can put “one” for yourself.
6. Tax identification number
When you registered your business with the state, you were issued a nine-digit number. Similar to a Social Security number, this is your EIN (employer identification number). Credit card issuers require it to verify your business. For freelancers or sole proprietorship business owners without an EIN, list your Social Security number here instead.
7. Legal name, contact information and social security number
Your legal name, personal contact information and Social Security number will always be required—it’s how credit card issuers check your personal credit history. Unless you’re already an established business with a few years under your belt, it’s likely that your personal credit history will be referenced to determine whether or not you qualify. To ensure your reliability as a borrower, they’ll look at things like your credit score, your income and any current or outstanding debts.
How to apply for a business credit card
The process of applying for a business credit card is almost the same as how you’d apply for a personal credit card. There are a few steps to follow that can help you identify the right card for you.
Order your personal credit report
As a newly established business, you likely haven’t built any business credit yet. In lieu of this, credit card companies will consider your personal credit history to verify you as a potential borrower. Before you apply for a business credit card, it’s a good idea to order your personal credit report and check your credit score.
While every business credit card will have different requirements, most require good or excellent credit for approval—a score of 670–739 is considered good, and 740 or higher is considered very good. A score of 800+ is considered excellent.
The three nationwide credit bureaus—Equifax®, Experian® and TransUnion®—provide one free copy of your credit report every year, which can be ordered from AnnualCreditReport.com. Take advantage of those free reports and ensure your credit score is sufficient for approval before you apply.
Compare business credit card options
There’s no such thing as one-size-fits-all when it comes to choosing a business credit card. Every business credit card comes with different rates, fees and perks that you’ll want to investigate. Your choice will ultimately depend on your unique situation, such as your financial goals, your purchasing needs and other factors specific to your business.
Consider your current financial situation and business needs. Is there a large purchase or investment you need to get your business off the ground, but you don’t have enough funds to cover it yet? If so, you’ll want to pay attention to the APR, or annual percentage rate, when choosing a card.
APR determines the amount of interest you’ll pay within a year, and some business credit cards offer 0 percent introductory APR. This type of offer can give you some time, usually 12 months, to pay off larger purchases and provides some breathing room when you’re first starting out.
Ask yourself where you spend the most in your business. Different credit cards offer different types of rewards, so choosing a card that rewards you for the categories you spend most in is something to consider.
Do you travel frequently? A card that rewards you with flight miles and prepaid hotels might be what you want. Are basic everyday purchases or office supplies and utilities your priority for a business credit card? You might want to look into cards offering cashback rewards for those types of purchases. Will you be attending client dinners often? Some cards offer cashback rewards specifically for restaurant spending.
The bottom line is that every business credit card offers something different, so tailor your choice according to how your business operates and where you know you’ll be using your card the most.
Read the fine print: understand your personal guarantee
The majority of business credit cards will require a personal guarantee when you apply. A personal guarantee holds you personally responsible for debt owed if your business is unable to repay it. It’s how credit card companies mitigate risk when extending lines of credit, and it’s critical that you’re aware of this requirement—often nestled in the fine print of your credit card terms—before going through with an application.
In the event that your business fails or you aren’t able to keep up with your payments, this liability holds you personally responsible for repayment, which can put your personal assets at risk.
Apply online
Once you’ve completed the steps above and have chosen the best business credit card for your needs, you can start the application process online. If you’ve ever applied for a personal credit card, the process won’t be much different.
Gather your required information ahead of time to simplify the process. This includes your personal contact information and Social Security number, and the details of your business as mentioned above (business name and contact information, EIN, number of employees, revenue, etc.). Then, simply fill out the application and submit it online. Take extra time to make sure every detail you include is accurate, and double-check your information before submitting.
What if I have poor personal credit?
Being a small business owner comes with risks. If you’ve suffered financial setbacks in the past and your personal credit took a hit because of it, you might be wondering how you’ll qualify for a business credit card.
While your options are limited, it’s still possible. Instead of a standard unsecured business card, a secured business credit card that requires a low or no minimum credit score for approval is your best option. A secured card is backed by a cash deposit you put down up front, which serves as a payment guarantee for lenders. If used responsibly, you can use this card to improve your business credit score and switch to a better card option in the future.
While lenders use your personal credit score as a qualifying factor in obtaining a business credit card, it’s important to note that your personal credit is separate from your business credit.
Your personal credit is tied to your Social Security number and is based on your personal spending history. Business credit, however, is tied to your EIN and reflects your business’s financial history.
Your personal credit score, which is created by the three major credit bureaus (Equifax, Experian and Transunion) is categorized by a single number. The most common method to determine this score is the FICO® method. With business credit, there’s no standard system used to determine your score; each business credit reporting service varies in how they establish it. Still, the foundation of a good business credit score will always include things like paying down your debts on time and maintaining a solid payment history.
How to keep your business credit in good shape
Establishing your business and applying for a business credit card are the first steps toward building solid business credit. From there, it just takes time, discipline and following a few basic principles to keep your business credit in good standing. Here are some best practices for responsible business credit management:
- Choose credit card vendors that report payments
- Make your payments early
- Look for errors on your credit reports
- Establish your business as credible
Choose credit card vendors that report payments
Not every credit card company or lender reports their customers’ credit history to the credit bureaus. If such is the case for the supplier you work with, no amount of stellar credit building habits will improve your business credit score. To ensure your credit building efforts aren’t wasted, confirm that your lender will report your payment history to the credit bureaus.
Make your payments early
Since your credit score is largely determined by your payment history, the timeliness of your payments shouldn’t be ignored. But what many people don’t realize is that while paying on time can help you secure a good score, going a step further and making your payments early will increase your score even more.
Look for errors on your credit reports
Credit reporting errors aren’t uncommon—but it is common for them to go unnoticed if you don’t periodically check your credit reports. Errors and fraudulent activity can hurt your credit score, and unless you make a point to keep a pulse on your account activity, you may find yourself in a difficult position the next time you try to borrow money or get a loan. Avoid this by checking your reports for errors multiple times throughout the year.
Establish your business as credible
Lenders consider more than just your payment history when determining your creditworthiness. An additional factor you should work to maintain is establishing your business as credible. This means giving your company a legal name and filing it with your state, as well as providing its phone number, mailing address and website. This signals that you’re a legitimate business and puts you in a better position to receive any financing you may apply for in the future.
Business credit cards play an essential role for many small businesses who rely on loans and grants and want to build their company credit profile. If you’re dealing with a low credit score due to unfair errors on your credit history, Lexington Law provides credit repair services that can help you navigate them before you go to apply for a business credit card. When used responsibly, business credit cards can empower small business owners to build their company’s reputation and succeed in the long term.
Source: lexingtonlaw.com