When operating a small business, you need to use lines of credit as well as available capital to solve cash flow issues. However, most startups do not have enough cash, making it necessary to obtain a business credit card. Businesses have large expenses and you do not want to be personally responsible for them.
This means that funding your business expenses with your personal credit card is not a good idea. Although getting a business credit card might seem daunting, it is not that hard. Here are some tips that will come in handy:
Check your credit rating
You need to check your personal credit score. Although it might seem irrelevant, it is important for the application process. Your potential card issuers will look at your personal credit score to decide whether you can run a company successfully and repay your debts on time.
You need a person to stand for your company’s credit card account even if you own a corporate entity. A credit score of above 700 will get you a credit card account for your business.
Register your business
You need to fill out the right paperwork in your state if you want your company to be recognized officially. After this, you can start interacting with credit card companies on your business’s behalf. The registration process is neither tiring nor time consuming.
Avoid mixing personal transactions with business
As obvious as this might seem, people tend to mix their business and personal transactions, which is a recipe for disaster. When filing your taxes, it can cause nightmares and it does not help money management. Do not use your business credit card to pay for personal bills or treat your employees to lunch.
Keep your personal and business finances separate to avoid trouble with the IRS.
Submit your credit card application
Once you register the business, you can submit your credit card application. Make sure that you include information such as your name, business address, business name, and type of business entity: sole proprietorship, partnership, or corporation. This information means that your personal score and income will play a part in determining your ability to get a business credit card.
As your business gets credit history, you will be in a position to access lines of credit. This is just like building a personal credit score.
Get cards for your employees
Although some business owners get cards for their employees, it can be quite risky. Having multiple credit cards could open the door to frivolous spending from employees who are not careful when using the company’s money. Moreover, you will have to manage several cards, which can be time-consuming and stressful.
For this reason, you should consider keeping a single card for your business. This will allow you to manage your account easily without worrying about what your employees are doing. In some cases, it makes sense to give certain employees extra cards. However, you should approach this on a case-by-case basis.
Getting a business credit card for your company will allow you to manage money as well as give you flexibility in handling cash flow problems. Just like with a personal credit card, you need to keep an eye on the interest rates and fees associated with your business credit card. To avoid penalties, make sure that you pay off your card’s balance on time every month. Doing so will allow you to build a solid credit score.
What are the fees of a small business credit card? The fees usually vary from one issuer to another. For this reason, you need to read the fine print carefully.