You may be wondering if using a business credit card is better than using a personal one when it comes to your small business. You might even be curious if you can qualify for a business credit card in the first place. Plus, business and personal credit cards can look the same.
However, there are some key differences that you should know about if you’re considering the idea of opening a credit card for your small business. Here’s what you need to know about business credit cards and what you can expect to see on a business credit card application.
Table of Contents
- What is a business credit card?
- What’s the difference between small business credit cards and personal credit cards?
- Do I need a business credit card for my business?
- Who qualifies for a business credit card?
- Does a business credit card impact my personal credit score?
- What to expect on a business credit card application
- Build your business with MoneyLion
What is a business credit card?
Business credit cards are a flexible way for small business owners to access and build business credit. A business credit card is a revolving credit line that is similar to a personal credit card, meaning you can use the available credit, repay it, and use it again.
Business credit cards are a great tool when it comes to paying for business expenses. These credit cards are a convenient way to purchase inventory and supplies, pay business-related bills, and afford your business-related travel expenses.
What’s the difference between small business credit cards and personal credit cards?
While there are similarities between a small business credit card and a personal credit card, there are a few key differences that are important to know about and understand. For starters, small business credit cards generally come with a higher credit limit than personal credit cards.
So, you’ll be able to make larger purchases with a small business credit card. You’ll also have access to bonus categories with a business credit card, such as phone bills, online advertising, office supplies, and more.
Bookkeeping benefits are a major benefit of business credit cards, too. When tax time rolls around, you won’t have to waste time searching through personal credit card statements for potential deductions.
At the end of the year, many business cards will give you an itemized report of your spending, too. Another feature of business credit cards is that many of them offer free employee cards with customizable spending limits as well.
Do I need a business credit card for my business?
A few reasons why you might want to obtain a business credit card for your small business is to help with short-term debt. A business card should never be used for long-term financial needs, especially massive purchases.
If you can’t repay a purchase within a few months, you will cause yourself to go into debt. A business credit card will also help you keep your business and personal expenses separate, making tax season less of a headache.
Finally, a small business credit card can come in handy if you have employees who need to utilize a credit card when making business-related purchases. If you find yourself using a personal credit card to pay for business expenses, it might be time for you to apply for a business credit card.
If you aren’t quite sure if you need a long-term revolving line of credit like a business credit card, or if you have bad credit and are having a hard time qualifying for a card, consider getting a MoneyLion Credit Builder loan instead. This loan can help you with business expenses and build your credit all at once.
The Credit Builder loan has no hard credit inquiries. Plus, it will boost your credit score to help you qualify for a business credit card if you need one in the future.
Who qualifies for a business credit card?
Many types of businesses qualify for business credit cards. If you sell items or services for a profit, you’ll have a good chance of qualifying for a business credit card. You don’t need to have a corporate business structure or have employees to qualify, either.
You might do freelance work or perform some type of gig work, like driving for Uber. Other businesses include home-based businesses, sole proprietorships, or limited liability corporations.
Keep in mind that typically, small business credit cards are reserved for people who have a credit score that is either good or excellent. This means that you should have a FICO score of 670 or higher. If that isn’t you, don’t worry! Hope isn’t lost.
There are certain cards that are intended for those who have a lower credit score. They just tend to have higher annual percentage rates (APRs), and they often come with fewer perks or rewards as well. The best business credit cards for bad credit are secured credit cards.
Secured cards are designed for people with bad credit or very little credit history. They allow you to make refundable deposits, which protect the card issuer, while also helping you establish and build your credit.
Does a business credit card impact my personal credit score?
Yes, your business credit card will affect your personal credit score. When you apply for a business credit card, the lender will usually perform a hard credit inquiry on your personal credit.
The hard credit pull will also directly affect and potentially lower your personal credit score by a few points. As you’re utilizing a business credit card for your small business, that credit report will, in most cases, be reported to credit bureaus alongside your personal credit score.
What to expect on a business credit card application
Now that you know what a business credit card is and how it can be useful for your small business, let’s talk about what you can expect to see on an application for a business credit card. Knowing the requirements ahead of time will help you be prepared to complete the application, which will ultimately save you a lot of time.
A simple requirement on business credit card applications is the legal name of your business. Your business can be set up as a C-corp, an S-corp, an LLC, or a limited partnership.
All you have to do is provide the name that you registered your business with. If you are the owner of a sole proprietorship or a general partnership, then you just have to provide your own legal name.
Personal information includes your legal name, your contact information, and your social security number. Card issuers will then use your personal information to check your personal credit score and credit history.
They will review your personal credit score and take a look at any of your current debt. Then, they’ll use your annual income to determine your debt-to-income ratio.
Business address and phone number
You’ll also be required to provide your business mailing address as well as a phone number. Work from home? No problem! Just list your home address and your personal cell phone number.
Tax identification number
When you register your business, you’ll be provided with a Federal Tax ID, also called an employer identification number (EIN). This is a nine-digit number that the IRS assigns to any and all registered businesses. Card issuers will use your EIN to verify your business. If you’re a sole proprietorship without an EIN, you’ll just have to list your Social Security Number instead.
Number of employees
You’ll have to list the number of employees who work for your business, even if you don’t manage employees other than yourself. If it’s just you, you’ll only have to list one employee.
Years in business
You may just be starting out, and that’s okay. If you’re a new startup or a small business, choose the lowest number available to you in your application.
Industry type and company structure
Finally, credit card issuers will want to know what kind of business you’re running and what your company structure is. When it comes to your company’s industry type, select the industry that is most closely related to your business.
As for company structure, your business will fall under the category of a corporation, a nonprofit, an LLC, a partnership, a government entity, or a sole proprietorship. If you’re a freelancer and you haven’t registered your business with the state, choose sole proprietorship.
Build your business with MoneyLion
Once you decide if a small business credit card is right for you, be sure to do your research to find the best and easiest business credit cards that suit your company’s needs. Whether you’re a boss lady building an empire, or a college student wanting to start your own lawn care business, knowledge is power.
So, be sure to spend time comparing credit cards and looking into other options before you commit to anything. If you need funds but don’t want to seek out a business credit card, consider obtaining a Credit Builder loan from MoneyLion!
The MoneyLion Credit Builder membership gives you access to the funds you need for your business without requiring you to agree to a long-term commitment. You’ll also get personalized tips to help you build your credit score, which you can easily track at any time. Plus, you’ll have access to Instacash cash advances of up to $250 at 0% APR!