A business credit card is an essential tool for companies of every sort and size. From providing companies with innovative ways to save, offering cash back rewards, and effectively managing business spending, the right business credit card can make the world of difference.
Applying for one is a relatively straightforward process for a small business owner.
However, there are a few considerations that you need to be aware of. If you’re in the market for a new business credit card, read on for 4 considerations you should know about!
#1 Your Business Model and Legal Structure
It’s important to have an in-depth understanding of your business model and cash flow. How you make revenue as well as what your fixed and variable costs are can have an impact on:
- Your ability to get a business card
- What expenses you’d be spending on
Additionally, your business legal structure can impact your ability to qualify for some cards. In particular, some sole proprietors may have a harder time getting approved for some corporate cards altogether, and find it easiest to obtain a card offered by their business bank.
Note: If you’re wondering how to get a business credit card, you’ll want to first identify the type of business you’re operating under, what your key spend use cases are, and the credit limit and terms you’re seeking.
#2 Know Your Personal Credit Score
Your personal finances may influence your ability to take out a business credit card. Some card providers use your credit score as a metric of credit card “worthiness.” Seeing your personal creditworthiness will show a credit card company if you’ll be responsible enough to pay your business bills on time. If you don’t have a good credit score, it’s possible that:
- You won’t be eligible for a business credit card
- You’ll be eligible for a smaller credit loan with a higher APR (annual percentage rate)
Does A Company Credit Card Affect Credit?
The short answer: yes, a company credit card can affect credit. Even if your personal finances are completely separated from your business, your company will have to maintain its own credit health.
It’s also important to keep in mind that activity on your business card may be reflected on your personal credit score. Making payments on time and being responsible with your company credit card will maintain your credit integrity. Depending on your business structure, it can directly affect your personal financial health.
If you have employees, implementing good spending habits and creating permissions is an absolute necessity. You don’t want the folly or poor spending of your team to affect your personal credit score.
That said, note that not all business credit card companies will look at your personal credit score or your personal finances as collateral. This is definitely something you should clarify before taking out a business credit card.
#3 Make a Plan for Spending and Payment
Spending on a business credit card is a form of debt. It needs to be treated with the utmost care.
Best practice is to have a plan in place for how you’re going to spend money, track your expenses, and stay within your budget. Most business credit cards will charge interest on unpaid balances, which can rack up quickly. On the other hand, corporate charge cards don't accrue any interest since the balance must be paid in full by the end of every billing cycle. This helps business owners avoid accruing debt and stay within budget.
Track Your Spending
As a business owner, your company’s bottom line can make or break your business. Thus, understanding how your business is spending money is key to effectively managing your finances and ultimately increasing profits.
Applying for a business credit card is a great way to not only separate your business expenses from your personal expenses, but it can also provide you with tools that help you spend smarter—and save money along the way. It’ll allow you to step away from using a personal credit card for business, making it easier to track your expenses.
Before you apply for a business card, consider how you’ll:
- Determine Who Receives a Card – If you have employees who spend on behalf of the company, it might make sense for them to be cardholders. Having other people on your company card means you may need to implement ways to control how much they spend, as well as exactly what they are allowed to use the company card for. Cards like Ramp--a corporate charge card, not a business credit card--have features that include request and approval flows. This allows you to empower your team to spend without losing control of your finances.
- Set Spending Limits – Managing your employees’ spending will help keep your company’s finances under control. Having a clear picture of your monthly spend can help you make healthier financial choices and help you plan for the future. Ramp allows you to view your expenses in real-time, and offers top-line views of your company’s overall spend (no need to wait for quarterly or monthly updates).
- Track Expenses – Tracking expenses is not only important for cash flow management, but it also sets expectations for taxes and accounting. Choosing a card with business expense report automation will help you manage your expenses and eliminate errors that can cost your business money.
Plan for Payments
Once you’ve outlined a spending plan, you need to consider how you’re going to make your monthly payments. If you keep a balance on your card, you may incur interest, depending on the type of card you choose and its terms.
Your spending plan should ensure that you never use the card outside of what you can afford, and you should always aim to ensure that you can pay the full balance on your card on time (so no interest accrues!).
#4 Preparing Your Application, What’s Required?
The application process doesn’t have to be complex, but it often is. The amount of documentation required can vary depending on the type of business you have, how many years you’ve been operating, as well as several other factors.
Note: Depending on the provider, you might need to provide additional documentation. While the application process is usually straightforward, it can vary depending on the company’s underwriting requirements.
Understand Your Credit Limit
Once you apply and are accepted, your credit card company will provide you with a credit line.
With most traditional business credit cards, the deciding factor is likely going to be based on your credit history, credit score, bank balance, and the volume and scale of your transactions.
Get Acquainted With Your Card’s Potential
As you apply for your secured business credit card, it’s important that you maximize your savings and rewards potential.
- Does your card provide cash back benefits?
- Do you get travel points?
- What types of purchases are most rewarded?
- If you spend a certain amount within the first 90 days do you earn a points reward?
- What other types of benefits beyond rewards can your card provide?
Ramp moves beyond only offering rewards to incentivize you to spend more. Its smart corporate card platform automatically identifies savings opportunities for your company.
Ramp: A Corporate Card to Consider
Now that you understand the considerations for a business card, it’s time to apply. Using a business card can provide your company with a range of benefits, and the sooner you open up your account, the sooner you can start managing your finances more effectively.
With Ramp’s corporate charge card, you’ll have both a company card and a spend management platform. Meaning, you’ll have access to features that allow you to track and view your spending in real time, automate your business expense reports, identify areas where you can save money, and get cash back on every purchase. The right card supports your business; it doesn’t drain it.
We offer business charge cards upgraded for the 21st century, and we craft our features with your company’s best interest in mind. Ready to apply? See if you qualify today!
CNBC. How to Apply for a Business Credit Card. https://www.cnbc.com/select/how-to-apply-for-a-business-credit-card/
Small Business Associated. Choose a Business Structure. https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
Investopedia. Using a Business Credit Card. https://www.investopedia.com/credit-cards/how-to-use-small-business-credit-cards/
Nerd Wallet. How to Get a Business Credit Card. https://www.nerdwallet.com/article/credit-cards/get-business-credit-card