If you run a local company, you should probably look into getting a credit card tailored to the needs of businesses. Your increased purchasing power enables you to finance the goods and services that your company requires, separates the money you spend on your business from the money you spend on yourself, and makes it much simpler to report all of your expenses when it comes time to file your taxes. It is essential to gain an understanding of the requirements necessary to obtain a business credit card in order to take advantage of the monetary and operational benefits that come with having one.
Business Credit Card Requirements
Income requirements for businesses, credit score minimums, and other criteria will vary from one lending institution to the next. However, before making a decision regarding a loan, a credit card issuer will typically look at both your personal and business credit reports. This is especially the case if your company does not yet have its own credit history. When applying for a business credit card, the majority of credit card issuers will also require a personal guarantee from you. This means that in the event that the company is unable to make payments, you will be personally responsible for any outstanding balances or debts.
How Credit Cards for Businesses Work
Credit cards for businesses and credit cards for individuals are comparable in a number of ways. If your application for a line of credit is successful, you will be granted a revolving line of credit that can be put to use to meet any requirement that may arise for your company. In addition, in the same manner as with your personal cards, you will be required to:
- Make on-time payments as part of responsible financial management of your company's account.
- If you have a balance that is carried over from one month to the next, you will be charged interest on that balance (unless you are currently participating in a promotion that waives interest charges).
It is important to obtain credit cards that offer points and cash-back rewards for travel, shipping costs, and other business-related expenses because you may rack up a significant number of expenses on your business credit card.
However, the Truth in Lending Act (TILA) only applies to business accounts in certain circumstances, which is one of the most significant differences between credit cards for businesses and those for individuals. The Truth in Lending Act (TILA) was enacted to require creditors to inform borrowers of the conditions and expenses associated with the credit being extended to them. Those who are in charge of a company are protected by the law in two significant ways, which is excellent news. If you don't request a card, you won't get one, and if your card gets lost or stolen, you won't be responsible for any fraudulent charges that are more than $50.
How to Get a Credit Card for Your Business
The process of getting a credit card for your company can be intimidating, but the steps that are outlined below can help guide you through it.
Look at your credit.
It is imperative that you first check your personal credit report and correct any errors that you find. These errors can include incorrect personal information as well as incorrect account status, balance, or credit limit information.
By going to the website AnnualCreditReport.com, you will have free access to your credit report from each of the three major credit bureaus that operate across the country.
If you find an error on your report, you should write a letter disputing the information to both the credit bureau and the reporting lender. Be sure to include any documentation that substantiates the claims you are making. Your complaint has to be looked into, and if the error isn't corrected, you have the right to get in touch with the Consumer Financial Protection Bureau about the situation. You can raise your credit score and improve your chances of being approved for a business credit card if you identify and correct any errors that appear on your credit report.
Find Out About Card Options
Since there are a variety of business credit cards available, the next thing for you to do is conduct research and evaluate the various choices that are out there. The following is a list of some of the factors that you ought to think about:
- The type of card (secured, unsecured, low-interest, etc.)
- Annual percentage rate (APR)
- Initial interest rate for new customers
- Interest rate for special promotions
- Fees (annual, late payment, foreign transaction, cash advance, etc) (annual, late payment, foreign transaction, cash advance, etc.)
- Rewards (points, airline miles, hotel stays, cash back, etc) (points, airline miles, hotel stays, cash back, etc.)
- Eligibility requirements (credit score, business income, etc.)
- Credit reporting (in a perfect world, the card would report your activity to business credit agencies, allowing you to build credit that is distinct from your personal credit file)
Consider your company's needs and objectives before selecting the credit card to which you will apply. If you are trying to save as much money as possible and you think there is a possibility that you will have to carry a balance, you should look for a credit card that does not charge an annual fee and has a low interest rate. If, on the other hand, you find yourself frequently on the road in the course of growing and managing your business, a credit card that lets you earn rewards such as airline miles or hotel stays might be the best option for you.
Try to Get a Card
After you have determined which business credit card will best serve the needs of your company, it is time to submit an application. Each issuer will have their own application form, and they will each require a different set of pieces of information before making a determination. You should, however, be prepared to provide a number of pieces of personal and business information. These pieces of information may include your personal annual income, personal credit score, type of business, length of time in business, annual revenue, federal tax ID, and possibly even more.
Options for Those With Limited or Poor Credit
Even if your personal credit history isn't stellar (or doesn't even exist), you might still be eligible for a credit card for your company. If you want to increase your chances of being approved, for instance, you could have a business partner who has excellent credit co-sign the application. But if that isn't an option for you, consider some of the alternatives listed below.
Secured Credit Card
Because you are required to make a security deposit in order to open an account for a secured credit card (hence the name), it is typically much simpler to qualify for one of these cards. Your credit line is increased by an amount equal to the value of the security deposit you provided. You will be able to use the card to make purchases as soon as it has been approved.
Paying your bills on time demonstrates that you are responsible with your money and helps strengthen your credit profile. If you keep your account in good standing for a sufficient amount of time, the bank may upgrade you to an unsecured card, which does not require you to put any of your own money up as collateral.
In the event that you do not pay the balance that is due or otherwise go into default on a secured business credit card, the issuer of the card has the right to take your security deposit.
Vendor Credit
You could also apply for vendor credit in order to improve your credit standing (as well as your flow of cash). You make a deal with your supplier to receive the goods and services you need right away, with the understanding that you will pay for them within a certain amount of time after they are delivered to you. If you make your payment within the specified amount of time, you won't be subject to any interest fees. This means that you will receive, in essence, a low-interest loan for a short period of time.
Before deciding whether or not to approve your application, your vendor will probably investigate your credit history. However, you can improve your chances of receiving a "yes" response by paying your bills on time (or early) for a significant portion of the time leading up to your application. In addition, you can demonstrate that you are capable of handling the responsibility by beginning with a very short net term, such as ten or twenty days. After that, the following time you apply for a business credit card, your list of credit agreements with vendors that are in good standing may help you get approved for the card.
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