If you’re like most business owners, you’ll need to borrow money from time to time. The first option you may consider is a small business credit card. After all, it’s nice to have a revolving line of credit to fall back on when needed.
In addition to deciding if you need a business credit card, other questions may also come up, including:
- When is a credit card the best option?
- How do you compare credit card offers?
- And what do you do if your business has no established credit history?
Find the answers to these questions and more below.
When is a good time for an LLC to use a credit card?
Many LLCs use their business credit cards to cover one-off small equipment purchases, like a computer, as well as day-to-day business expenses, such as furniture, office supplies, and travel. Occasionally, LLC operators leverage credit cards to cover the initial costs of launching the business. In these cases, they also partner with financial planners to ensure they don’t overspend and get into debt from the onset.
However, an LLC should avoid using business credit cards for things like very expensive equipment and other large purchases. In these cases, you’re likely better served with an equipment loan or another form of term business loan.
What to do before applying for an LLC business credit card
Before you apply for a business credit card, here are a few things to get to ensure that the application process goes as smoothly as possible.
Gather paperwork and documentation
To apply for a business credit card, you’ll need the following documents:
- Your LLC’s articles of incorporation: Credit card companies use your articles of incorporation to validate the information you provide on your application, including how long you’ve been in business.
- Business bank account statements: Lenders use your business bank statements to ensure your business has enough revenue and profitability to cover the cost of additional debt.
- Employer Identification Number (EIN): Your EIN is your business’s tax identification number. Credit card companies use it for the same purposes they use social security numbers for personal credit cards.
- Profit and loss statements: Profit and loss statements are another way banks determine if your business can afford to take on debt.
- Business tax documents for the past three years: Most credit card companies require three years of business tax documents to verify your stated profitability. Some lenders may only require one or two years' worth of documents, but it’s best to be prepared in case you’re asked for three years.
- Identification documents for all owners of the business: All business owners must agree to open a new credit card. You’ll also need identification information for all owners, including state-issued identification cards and social security numbers.
- Written business plan: This may not be a requirement for all lenders, but some lenders require your business plan for approval. If so, they’re likely looking into your plan to determine if your business is sustainable enough to manage long-term debt.
Your lender may ask for additional information that we didn’t cover here. To ensure that your application gets approved, be sure to provide these supplemental materials whenever necessary.
Obtaining a personal guarantee
The vast majority of business credit cards require a personal guarantee. Keep in mind that when you make a personal guarantee, you’re turning business liabilities into personal liabilities.
This could backfire in the long-term; after all, when you turn business liabilities into personal liabilities, you’re responsible to make the payments if your business cannot.
But it doesn’t have to be all doom and gloom. If you find your business in a tough spot financially, it may be best to consider modern lending options, like those offered by Ramp. Ramp gives you access to the capital you need without a personal guarantee requirement.
Understand your credit needs and wants as a business
Before you apply, carefully consider what your business needs and what you want from a credit card. For example:
- Do you need multiple cardholders: If you plan on empowering your employees with spending accounts, you’ll need to make sure the account you choose offers employee cards.
- Expense management tools: Some modern LLC cards (like Ramp) come with several tools to help you manage and optimize your business expenses.
- Spend controls: If you plan on giving your employees access to your credit account, be sure the account you use offers spend controls that stop them from using your business assets in a wasteful way.
- Rewards: The best business credit cards come with rewards programs. Think about the types of rewards you’d like to earn as you grow your business.
There are countless things your business might need from its credit card account. Think about what those needs are before you compare your options.
8 considerations for choosing an LLC business credit card
Not all business credit cards are created equal. Each lender is free to set their own fees, terms, and benefits for card membership. As such, it’s important to compare your options carefully. As you do, consider the factors that are likely to have the largest impact on your business. For example, you should pay close attention to fees, rewards, interest rates, bonuses, and features that will help you grow your business.
When choosing a business credit card for your LLC, consider your primary business needs and expenses and how much cash you may need access to at any given time. Even though each credit card issuer sets its own fee structure, there are fee-free options like Ramp that help start-ups and small businesses access the capital they need affordably.
When choosing a business credit card, consider its rewards programs. These programs fall under two categories:
- Cashback rewards. These are credit cards that offer straightforward rewards via statement credits, checks, and gift cards. When you spend money on the card and you automatically know the value of the rewards.
- Point-based rewards. These programs offer rewards on expenses like travel. To get the most out of point-based rewards, you’ll need to track spending categories, excessively use your card at places like gas stations, restaurants, and office supply stores, and use rewards when you don’t want to just to get the most out of point-based cards.
It’s typically best to choose a cashback rewards credit card over the point-based options. In particular, look for a rewards program that offers a set cashback percentage that’s paid on all purchases to get the most out of your rewards program.
As you compare offers and providers, you’ll find that each card comes with its own interest rate. This is the interest you’ll pay if you carry a balance from month to month. If you plan to do so, compare these rates carefully and choose the lowest rate possible, as your interest will likely represent your largest fee.
Also, you may be enticed by a 0% introductory APR. Keep in mind that an intro APR typically only lasts for the first year before the standard rate kicks in. So, be sure you know the standard rate.
It’s also important to note that you’ll be charged different interest rates on different parts of your balance. Credit cards usually come with the following rates:
- Standard interest rate: Your standard interest rate is the rate you’ll pay on the percentage of your balance you accumulate through standard purchases.
- Balance transfer interest rate: Balance transfer interest rates are usually the same as standard interest rates unless you’re in a promotional period.
- Cash advance interest rate: Cash advance interest rates are usually significantly higher than purchase interest rates. This is the rate you’ll pay when you get cash back at a merchant or use your credit card to otherwise access cash.
- Default interest rate: The default interest rate is the highest rate of interest you’ll pay. This typically applies to your entire balance if you default on the terms of your account. For example, if you make late payments, you may be required to pay the default interest rate for a predetermined number of months after you make the late payment.
Credit card companies also apply your payments to different balances differently, typically paying the lowest interest portion of the balance first. For example, if you owe $2,500 at the standard rate and $1,000 at the higher cash advance rate, your payment is typically applied to the standard balance first. Simultaneously, the lender earns more from the cash advance balance sitting until the standard rate is paid off, so be careful how you use your card.
Many cards also come with welcome bonuses that offer extra rewards points, but they’re only valuable to some small business owners. That’s because you’ll need to spend a predetermined amount of money (usually in the thousands of dollars) on eligible purchases within a predetermined number of billing cycles to access the bonus points.
As you compare bonus programs, look at the spending requirements to access your welcome bonus. Choose options with welcome bonuses you can access based on your company’s spending habits.
As you compare your options, look for business credit cards that offer accounting automation features. For example, you can integrate Ramp with your favorite HRIS, ERP, and productivity applications to close your books up to eight times faster.
Virtual cards — like those Ramp provides — come in handy for online purchases, especially subscriptions. If you don’t know how to cancel a subscription or don’t want to go through the process, you can just close the virtual card without closing your account. Virtual credit cards are also a great way to reduce the risk of credit card fraud.
However, not all business credit cards offer this feature. Some may charge a fee for each virtual card you open, or limit the amount of virtual cards you can use. Look for offers that not only let you create virtual cards but do so on a fee-free and unlimited basis.
Unlimited employee cards
Employee cards let you empower your employees to spend on your company's behalf, eliminating the need for time-consuming reimbursement programs.
If you plan on giving your employees access to employee cards, you’ll need a credit card company that offers this feature. You’ll also want to ensure that you don’t have to pay any additional cost for each card.
This is where Ramp comes in. Not only are employee cards free, but Ramp also gives you the ability to set spending controls, making it impossible for employees to spend over your spending policies.
Spend management software
The best business credit cards aren’t just credit cards. They come with additional perks, the most important being financial management features. With platforms like Ramp, you can take advantage of tools like:
- Automatic receipt reconciliation
- Automatic purchase categorization
- Integrations with your favorite accounting software
- Detailed financial reports that help you find optimization opportunities
Moreover, you can simplify your global spending, intelligently manage all business vendor purchases, and make payments using card, check, ACH, or wire transfers.
These tools make it easier to handle your LLC business taxes, optimize spending, find opportunities to grow your business, and close your books eight times faster.
Big picture features
Search for features that will help your business grow. For example, you can make bigger bets with Ramp as credit limits are typically 20 times higher than traditional cards. It also comes with 1.5% cash back on all purchases and extended payment terms with Ramp Flex.
Challenges and things to avoid with a new credit card
Business credit cards are popular among established and new LLC operators alike, but the application process is far from straightforward. Here are a few challenges you might come across when applying for your first business credit card.
Qualifying with bad credit
As we mentioned earlier, many credit card companies require a personal guarantee if your business has no credit history. In some cases, you may even have to choose a secured option to build business credit. That means you’ll have to place a security deposit with the lender to use the credit card.
Lack of financial records
If your business is new, you may not be able to provide the financial records some lenders require to access a business credit card. For example, if you haven’t been in business for three years, you won’t be able to produce three years of business tax returns.
The good news is that not all options require you to have such extensive financial records. In fact, there are multiple business credit card offers that only require you to have an EIN.
You can also consider working with an option like Ramp that uses sales-based underwriting to help startups and new businesses access the credit they need.
How Ramp helps LLCs manage their spend
You can deal with the fees, difficulty getting approved, and complex rewards programs offered by typical business credit cards if you’d like, but you don’t have to. Instead, consider signing up for Ramp.
With Ramp, you can:
- Access a higher credit limit: Ramp’s sales-based underwriting leads to higher credit limits and makes approval easier on new businesses, making it the perfect business credit card for new LLCs. In fact, credit limits are up to 20 times higher than average.
- Empower your employees: Give your employees their own spending accounts with spending controls and empower them to access the tools they need faster.
- Simplify your business spending: Manage all of your vendors and make automatic payments via check, ACH, and wire transfer globally.
- Automate tedious accounting: Businesses that automate tedious tasks with Ramp close their books up to eight times faster.
- Simplified rewards: You’ll earn 1.5% cash back every time you or an employee swipes a Ramp card. There are no limits to worry about and no spending categories to juggle.
Stop wasting your time with archaic financial tools. Get Ramp to experience the power of modern technology in your business’s finances.
Yes, if you meet the requirements for approval. If not, you’ll need to make a personal guarantee, attaching your personal name and credit to the credit card. Also, when you receive your business credit card in the mail, it will likely have the business name and cardholder name printed on it, regardless of whether or not you make a personal guarantee.
A limited liability company is a company structure that acts as a pass-through for tax purposes. This means that the tax liability the company generates is passed down to its owners. Other company structures, like C corporations, are entities that are taxed directly with owners only being taxed on the money they receive as payments from the company.
You could, but it might create an accounting headache and make you liable for business debt. It's best to keep business and personal accounts separate.
Look for options with low fees and interest, modern tools for managing expenses, and tools to empower your employees as you compare LLC credit card offers.
You’ll use your EIN when you apply for any business credit card, but you may have to use your social security number as well. If you’ve been in business long enough and have established positive business credit, you may be able to qualify for a business credit card using only your EIN.
If that’s not the case, you’ll likely be required to make a personal guarantee and use your social security number as well.
One of the fastest ways to access the credit you need is to sign up for Ramp. Ramp’s sales-based underwriting is far less complex than the underwriting for most business credit cards, so the approval process is faster.
If you need another form of business credit, Ramp works with multiple vetted lending partners and can help you access the cash you need quickly.