If you're planning to open a business or have done so recently, you may be interested in getting a business credit card. There are many factors that go into choosing a credit card for your business or start up. This article will walk you through why you may want a business credit card for a new business, what factors to consider and how to apply.
Why do new businesses need a credit card?
When you're considering whether to open a business credit card for your business, you may be curious about some of the benefits. Some of these benefits may include:
- Financing purchases. A credit card can help you finance things that you need to run a successful business, from equipment to office supplies. As a new business or startup, you may not have the cash right away, especially for some of the bigger purchases needed to help run your business.
- Simplifying expenses. If you have employees helping with business-related purchases or who are traveling for work purposes, having a company credit card for employees to use can help streamline expenses.
- Collecting rewards. Some credit cards offer rewards, such as miles, points or cash back. You may be able to redeem these for things like flights or hotel stays, or even gift cards to help pay for other expenses.
- Qualifying for insurance. Like personal credit cards, some business cards may offer purchase and travel protections to provide your business with benefits like trip cancellation insurance, extended warranty protection and rental car damage insurance.
- Managing cash flow. Business credit cards may help a business spread out large expenses or help you make payments during cash flow gaps, such as while waiting for a customer payment.
- Building business credit. Just like individuals, businesses have an assigned credit score. Having good credit will typically allow your business to borrow money when it's needed. Having a business credit card and using it responsibly can help build or maintain your business' credit score.
Once you've decided a business credit card is right for you, it may seem daunting to find the best business credit cards for startups or new businesses. However, there are a few steps you can take to help you figure out what will work best.
How to choose a business credit card
When it comes to how to get a credit card for a new business, there are a few considerations to keep in mind when choosing:
Identifying business goals
Before you select a credit card, you may want to sit down and identify your business' goals. These might be measurable steps you can take that will help get your business where you want it to be. You may find it helpful to set:
- Short-term goals: What you want to accomplish in six months
- Medium-term goals: What you want to accomplish in a year
- Long-term goals: What you want to accomplish in the next five years
Once you've identified these goals, you'll have a better idea of how, or if, a credit card will help you reach them.
It's important to know how much you're spending before you seek out a credit card. You may want to start with your daily business expenditures. Keep close track of these for at least a month or two to see where your money is going. You may also want to calculate your business' net income. You can do this by subtracting your expenses from your total revenue.
Evaluating credit card features and benefits
When looking at different cards, make sure to carefully read through all the information about card features and benefits. This can help you choose a credit card with rewards that best fit your business. For instance, if your business requires employees to travel often, a card with flight miles or hotel rewards may make the most sense for you. On the other hand, if your expenses are mostly spent on daily operations, then a card with cash back rewards might be best. It's ultimately a choice specific to your business.
Additionally, be sure to fully understand the card's annual fee (if it has one), its interest rate if you carry a balance, and any other benefits such as cardholder discounts, travel protections or account management tools.
Understanding cardholder protections
Protections for business credit cards are usually different than protections for individual consumers. Before committing to a card, be sure to read about what protections the lender offers for businesses. For instance, you may want to ensure your credit card offers things like fraud protection and rate increase notices. Additionally, speak with potential lenders to learn about their application of payments and penalty fees and rates. Business credit cards are not regulated in the same ways as personal credit cards are, so it may not be safe to make assumptions based on past personal experience.
Types of credit cards
There are two main types of business credit cards: secured and unsecured. A secured credit card for new businesses requires the business to put down a security deposit. How much a business puts down can range greatly. These may be an option to consider for new businesses that don't yet have a strong credit history or business credit score. The security deposit usually acts as the entire credit limit for a secured credit card, reducing the risk of nonpayment to the lender. Chase doesn't currently offer secured credit cards.
Unsecured credit cards for new businesses don't require a security deposit. Some businesses may find getting approved for an unsecured credit card to be a little more difficult if they do not already have some credit history. However, there are unsecured business credit cards on the market for most credit levels. You may also find that unsecured cards have higher limits and better rates than secured cards. Additionally, you may find unsecured credit cards are more likely to have a rewards program. For instance, the Chase Ink Business Unlimited® card offers 1.5% cash back on every business purchase.
How to apply for a business credit card
Once you've found a card that fits your business' needs, you can fill out an application online or in a branch. Some of the information you will need on hand may include:
- Business name and address
- Type of business
- Tax identification number
- Annual business revenue
- Number of years your business has been in business
- Number of employees (don't forget to include yourself!)
- All related business articles, such as formation documents, Secretary of State documents and your business license.
The issuer will then pull your credit report, and it's possible a decision can be made immediately. It's also possible you will need to provide more information.
Choosing a business credit card for new businesses or startups is a highly personal decision. It's important to focus on the needs of your business specifically to find the card that will fit you best. Business credit cards for startups can help build your credit and grow your business, just be sure to do plenty of research beforehand.