Opening a Business Credit Card: What You Need to Know

You’ve got your business up and running, your bank account set up, and your operations running smoothly. One powerful tool that may be missing from your strategy is a business credit card.

More than just a way to pay for expenses, it can help strengthen your company’s credit, earn you valuable rewards, and help manage cash flow effectively. Though a business credit card operates similarly to any other type of credit card, it’s important to keep a few things in mind when thinking about applying for one.

Here’s what you need to know when opening a business credit card.

• Business credit is different from but can still be tied to personal credit.
  When applying for a business credit card for the first time, your personal credit score and history will be heavily considered. If you don’t have a long business credit history, lenders will rely on your personal financial track record to determine your creditworthiness.

  The better your credit score, the better your card’s terms will be. The average FICO score range needed is between 680 to 700. You want your score to be as high as possible when applying to ensure you’re presenting a strong likelihood of paying the money back consistently and on time.

• There is an aspect of personal liability.
  It’s common that lenders will require you to be held personally responsible for a debt if your business can’t pay it. It’s the same principle as if you cosigned for someone; if your business defaults, it can affect your personal credit score. Consider that responsibility when applying for and making purchases on a business credit card.

• Your business does not need to be registered.
  Sole proprietors and freelancers can also qualify for a business credit card – even without an LLC or EIN. Although, having an EIN and formal business structure typically allows you to qualify for higher-tier cards and overall better terms.

• Use it strictly for business purposes.
  Using your business credit card for personal use can lead to account cancellation and makes things complicated when filing your taxes. Card agreements typically have you agree in writing that your business credit card will be for commercial use only.

• There are fewer fraud protections.
  Unlike personal credit cards, business credit cards are not protected by the Fair Credit Billing Act, which limits a consumer’s liability for unauthorized charges. With a business credit card, it’s possible that you could be held fully liable for fraudulent charges. It’s important to research what kind of protections your bank offers you and have safeguards in place like SecurLOCK ™ Equip so you can lock your card the moment it’s misplaced.

  Because there aren’t as many fraud protections in place on a business credit card, if you’re a sole proprietor or freelancer, using a personal credit card might be less of a risk with their heightened consumer protections.

• There is no legal limit to the number of cards that can be issued.
  Depending on the organization and size of your business, you may want certain employees to also be cardholders. There is no official limit on how many cards can be on one business account, but your issuer may have their own policy. Consider how many lines of spending you’ll be able to realistically and properly manage.

• You can earn rewards.
  Many business credit cards offer rewards in the form of cash back, travel points, or purchase protections. You can use these to treat customers, incentivize employees, and purchase company-related travel.

• Beware of red flags.
  When evaluating your offers, be sure to also look for these red flags: guaranteed approval, hidden or excessive fees, ultra-high interest rates, lack of transparency, and unusual credit limits. All of these can indicate a scam.

A business credit card is a valuable tool for business owners wanting to elevate their cash flow management and ease of operations. With it, you have the opportunity to build your business’s credit, unlock beneficial rewards, and delegate purchase responsibility to certain employees. By choosing the card that fits your business, using it responsibly, and staying aware of the advantages and restrictions, you’re positioning your business for better financial stability and long-term success.

Ready to take the next step to open a business credit card?

Contact us today.