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What is a business credit card & how do they work

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    Starting a business is exciting! You have an idea and you can't wait to share it with the world. But with this excitement often comes the need for financing. Business expenses can add up quickly and you might be thinking about a way to cover your startup costs or sustain steady growth. One popular way to access financing relatively quickly is through a business credit card.

    Business credit cards can be a helpful way to kickstart growth by providing access to credit. This credit may allow you to invest in the systems, equipment and people you need to in order to reach your business goals.

    In this article, we'll outline some benefits of a business credit card, how to apply for one and how using one may affect your personal credit.

    What is a business credit card?

    Similar to a personal credit card, a business credit card offers businesses access to credit with a set limit and APR terms. They often come with benefits and resources that speak to the needs of a business. These could include things like expense monitoring, rewards for everyday business purchases, employee cards and higher credit limits.

    How does a business credit card work?

    Business credit cards work by providing credit, up to a certain limit, to a business with the expectation that the debt will be paid back. As with any credit card, interest can be charged for any remaining balance at the end of each billing cycle. If the balance is paid off in full each billing cycle, you will not incur interest.

    Business credit cards are typically more flexible and more easily accessible than other financing options such as a business loan. In addition, these cards may offer opportunities to earn rewards or cash back for your business purchases.

    What are the benefits of a business credit card?

    Business owners may find several key benefits to using a business credit card.

    Higher credit limits

    Business credit cards often have higher credit limits than personal credit cards. This can be a gamechanger if you need to make a purchase for your business that exceeds what you would normally charge on your personal card. Some cards also have an introductory offer with a low APR for a certain period of time after opening your account. This may come in handy for a big purchase in which you're able to pay off fully within that introductory period.

    Rewards for business-related spending

    You might be able to earn rewards for the dollars you spend on your business using the card. Depending on the card, you may then be able to redeem them for cash back, gift cards, flights, hotel stays and more.

    Business perks

    Some business credit cards come with perks such as custom expense reports, purchase protections, extended warranties, travel emergency assistance and more. In addition, some may offer the ability to accelerate your reward earnings on common business categories of spending.

    Employee cards

    Stay in control and enjoy added flexibility with credit cards for your employees. In addition to eliminating the need for cumbersome reimbursements, some cards give you the option of monitoring employee purchases, as well as the ability to set individual spending limits anytime. Plus, you might be able to earn rewards from their purchases — automatically.

    Separate business expenses from personal

    Putting all your business expenses on a business credit card could make things easier during tax season and for general record-keeping. Depending on the card, you may also be able to link your quarterly expense reports to certain accounting software so you can track your spending and be prepared for tax season.

    Build a business credit score

    To build a business credit score, you need to use your credit wisely. When you responsibly use a business credit card and pay at least your minimum payment each billing cycle, you may begin to establish a business credit score. This business credit score, similar to your personal credit score, is a way for lenders to evaluate your creditworthiness. Creditworthiness is your predicted ability to repay loans .

    The higher the credit score, the better interest rates and lines of credit you might be considered for if you ever want to apply for a business loan or other kinds of financing. When it comes to business relationships, this score may even act as a signal to potential vendors, suppliers and other strategic business partners on how your business manages its credit.

    How does a business credit card affect your personal credit?

    When you initially apply, the business owner is considered personally responsible for debt accrued by the business. Therefore, there will be a hard inquiry to your personal credit report. This is because the issuer needs to gauge your creditworthiness before qualifying you for a business credit card. If approved, a new business credit history and credit score are created and these become separate from your personal credit.

    Can you get a business credit card with an LLC?

    Yes you could get a business card with an LLC. To apply for a business credit card as an LLC, you must be the owner of the LLC or your name must be included in the operating agreement.

    If you're not an LLC, you can still apply using your employer identification number (EIN) or your social security number.

    Just remember that choosing a business credit card often depends on the structure of your business, and whether you're brand new or established. It's a good idea to research the terms and conditions as well as the features of each card to determine which one will be most beneficial to your business.

    How to apply for a business credit card

    To apply for a business credit card, you can fill out an application online or in person at a bank or card issuer. Here are a few things you will likely be asked:

    • Business name, address and phone number.
    • Annual revenue, number of employees and years in business.
    • Type of business, industry and legal structure.
    • Estimated monthly spending.
    • Employer identification number (EIN) if you have one.
    • Personal information such as Social Security number, date of birth and address

    Some credit card issuers may require additional documents, such as financial statements, to verify your business's creditworthiness.

    Once you've selected a card, you'll need to complete an application and agree to the terms and conditions before submitting.

    In summary

    A business credit card can be a helpful way to finance the growth of your business through access to credit and the potential to earn rewards. In addition, it can help keep your finances organized by separating your business expenses from your personal. If used responsibly, a business credit card could help you establish a business credit score that carries heavy weight for any future financing needs or big vendor partnerships.

    If you're looking for a good place to start with a business credit card, you may want to consider the Chase Ink Business Preferred® Credit Card. Not only does this card offer rewards in common business spending categories, but you may also earn a sign-up bonus if you reach the spend minimum within a certain period of time.

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