No matter if you're just beginning to earn money from a side hustle or you've got an established business that's ready for the next level, you are likely eligible for a business credit card.
Even if you haven't officially incorporated your business, as long as you're trying to earn a profit in some legitimate way, you can apply for a small business credit card. The application gives you the option to enter your Social Security number instead of an EIN (Employer Identification Number), if you don't have one yet.
In this article, we'll share what you need to know about business credit cards.
What is an EIN number?
EIN stands for Employee Identification Number and is issued by the IRS. It is used to identify businesses in the U.S. This number includes information about the state in which the business is registered and identifies the kind of business tax returns that are required to be filed. Sometimes this number is referred to as the Federal Tax Identification Number.
To apply for an EIN, you can complete an online application at no charge. It will ask for the name of your business, the industry, how many employees you have and a few more pieces of information, none of which require official documents. Once the application is submitted, the information is validated and an EIN is issued during that same online session.
What kind of work qualifies for a business credit card?
Any work that produces a legitimate income can be considered for a business credit card. Here are just a few examples of work that is eligible, but there are many more:
- Freelance writer
- Ridesharing service
- Independent consultant
- Freelance social media manager
- Dog walker or pet sitting
- Artisan who sells handmade works online
What are the requirements for a business credit card?
Though a formal business name or EIN is not required to qualify for a business credit card, there are several factors that an issuer will consider regarding your endeavor. This includes how many years the company has been in business and the company's profits.
In addition, it's important to note that a business owner is considered personally responsible for the credit line on a business credit card.
Therefore, the issuer may consider your personal information, including credit score and total income, when evaluating the application. After that initial inquiry of your personal credit, the business line of credit that you open will be separate, so your credit utilization ratio and payment history will not affect your personal credit score.
Why choose a business credit card over a personal credit card?
Personal and business cards can both give you access to lines of credit, but the two are different in how they operate. Personal credit cards are meant for individuals and their daily spending habits, like household items and groceries. Business credit cards are meant to be used by businesses for business expenses and should be kept separate.
Here are a few reasons why you might choose a business credit card over a personal one when it comes to your business.
The business perks
The needs and expenses of a business owner are much different than a consumer's. Many business credit cards offer perks specific to these kinds of expenses. This may include expense management tools, cards for employees, purchase protection and warranties and even access to certain airport lounges for those who do a lot of business travel.
The rewards on business expenses
Many business credit cards offer travel rewards or cash back on expenses in categories that cater to a growing business. This means every time you buy gas for your company car, fly across the country for a sales meeting, purchase new laptops for your employees or buy supplies in bulk — you'll be earning rewards.
The opportunity to build a business credit score
At some point, you may consider financing the growth of your business through a business loan. When you responsibly use a business credit card by paying at least your minimum payment each billing cycle, you start to build a business credit score. This business credit score, similar to your personal credit score, is a way for lenders to understand your creditworthiness. The higher the score, the better interest rates an lines of credit you might be considered for if you ever want to apply for a business loan or other kinds of financing.
Business credit scores may be affected by length of credit history, payment history, credit utilization ratio, bankruptcies. In addition to those, a business credit score may also be affected by the age and size of the company, and the risk profile of the industry you're in.
When it comes to business relationships, this score may even act as a signal to potential vendors, suppliers and real estate professionals on how your business manages its credit. These parties can look up your business credit score by purchasing a credit report from a credit reporting agency.
What to consider in a business credit card
Before deciding to apply for a business credit card, you may want to consider several factors that could be impactful to your business.
If you're putting a lot of your business expenses on your business credit card, you might as well be earning rewards for it! Credit card rewards can often be redeemed for travel or even cash back.
When deciding which rewards card is best for your business, you may want to consider what categories you tend to spend the most on. For example, do you find that most of your spending is on office supplies, product supplies and general operations? A cash back credit card may be prudent. On the other hand, do you find that most of your spending is on business trips (either by air, train or car)? In this case, a card that offers travel rewards might make the most sense.
Another consideration is how the rewards program is structured. Some cards may offer a 2x or 3x multiplier of rewards points in specific categories, while others use a flat rate rewards system for all purchases. The latter may be useful if your spending encompasses a variety of categories.
Added features and benefits for business owners
Business credit cards often come with special features geared toward business-related needs. These may include:
- Employee cards. Each employee can get an authorized card and you can set custom spending limits for each.
- Exclusive discounts. Some cards may offer discounts for products or services you use regularly — such as hardware, subscriptions, cloud storage or tax software.
- Trip cancellation/Trip interruption insurance. If your trip is canceled or cut short by sickness, severe weather and other covered situations, you can be reimbursed up to a certain amount.
- Extended warranty protection. Extends the time period of the U.S. manufacturer's warranty by an additional year on eligible warranties.
- Account management insights. View account details, statement and quarterly reports.
- Airport lounge access. Business travel may be less stressful with access to airport lounges that include amenities such as food, beverages, work stations and high-speed Wi-Fi.
You'll want to note that most credit cards with rewards and perks like this will likely come with an annual fee. Be sure to read the terms and conditions before applying.
In general, interest rates can vary by credit card product. It's important to remember that the interest rate you are approved for is based on creditworthiness, among other things. You may be able to avoid paying interest if you pay off your balance in full each billing cycle. In any case, the higher your credit score, the more likely you are to get a lower interest rate.
Depending on your business plan, you may need a certain credit limit in order to finance your growth objectives. Business credit cards typically have higher limits than personal credit cards because they take into account both business revenue, personal income and your personal credit score. If your business revenue is higher than your personal income, you'd most likely get a higher credit limit than on a personal card alone. After a period of consistent, on-time payments, the card issuer may consider a credit line increase.
No matter the size or scope of your business, you may be eligible for a business credit card. If you don't have an EIN, you can use your Social Security number. As a business owner, you may find that keeping your personal and business expenses separate is helpful. Furthermore, you may find the business-related rewards and benefits of a business credit card offer additional value for your company.
Not sure where to start? Chase has several business credit cards, including Ink Business Premier™, that may align with your business needs