Choosing a business credit card as a sole proprietorship

If you're facing financial challenges as a sole proprietor, you're not alone. It's estimated that half of all small businesses fail within their first five years, often due to money management and funding struggles. That's why it's critical for small business owners, including sole proprietors, to build a strong credit history and use business credit cards wisely.

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The right credit card can provide business cash for everyday expenses and help you scale your company. In this guide, we'll discuss the benefits of business credit cards for sole proprietors and offer tips for selecting the right card for your business needs.

Can I get a business credit card as a sole proprietor?

Sole proprietors can get a business credit card using their Social Security number and personal address, even if they don’t have a registered business. Most small business owners don’t have the business credit history to avoid providing a personal guarantee to qualify for a credit card. Some business credit cards for sole proprietors may ask for proof of income during the application process, which can be provided through tax returns or bank statements.

Do sole proprietorships need separate credit cards?

As a sole proprietor, it’s a good idea to use a separate credit card for business expenses so that you can easily calculate your tax deductions. Having both personal and business expenses on one credit card statement can make it hard to remember what you bought for your business.

What is the best business credit card for a sole proprietorship?

The best business credit cards for sole proprietors offer low fees, a high credit limit, and low interest rates. Here are some factors to consider when choosing a card:

Fees and interest rates

To avoid paying interest on a business credit card, it's important to pay your balance in full every month. Look for credit cards with no activation, annual, or monthly fees. Compare intro APR rates, regular interest rates and fees for balance transfers to find the most favorable card offers.

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Examples of business credit cards with favorable fees for sole proprietors include the Blue Business Plus card from American Express and the Spark 1% Classic card from Capital One, both of which have no annual fees.

Reward options

Consider card providers that offer cardholders perks, rewards, or sign-up bonuses. Cashback rewards can be lucrative, and sign-up bonuses provide extra rewards when you spend a certain amount within a specific timeframe after your account opening.

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For example, the Ink Business Unlimited credit card from Chase offers $900 in cashback rewards if you spend $6,000 in your first three months. Alternatively, the Amazon Business American Express card is a great option for sole proprietors with lower spending.

Integrations and automation

Look for business credit cards that integrate with finance automation systems to simplify financial tracking, bookkeeping, and accounting processes. As a sole proprietor, you may not have employees or contractors to pay. You still have the obligation to report your income for tax purposes, and that can take hours or even days if you aren’t prepared.

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These systems can save you time and effort by automating tasks like bill payments and expense reporting. Select a card that integrates with your preferred tracking system, such as NetSuite, QuickBooks, or Sage Intacct.

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You also want to consider a business bank account or corporate card to help you manage business spending while automating some of these tasks.

Benefits of business credit cards for sole proprietors

Even if your business expenditures are limited, there are several advantages to having a business credit card as a sole proprietor:

• Separate business and personal finances: Business credit cards allow you to track business expenses separately from personal ones, making financial tracking more accurate.
• Finance larger purchases: Having a business credit card can provide the necessary cash flow to handle large orders and expenses.
• Build your business credit score: As a new business, using a credit card that reports to the business credit bureaus helps establish a strong business credit history, proving to lenders that you’re financially responsible.
• Efficiently manage cash flow: Many sole proprietors use credit cards for daily expenses to build business credit while ensuring funds are always available for routine costs.
• Earn membership rewards: Rewards programs may offer points or cashback on eligible purchases, like cell phone services or purchases at office supply stores and gas stations. If you travel, look for a card that offers business travel rewards.

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Many of these benefits come down to time saved. When you keep business purchases separate from personal ones, you spend less time separating everything out for tracking and reporting. Your business could save hundreds of hours by automating expense reports. You may save on a smaller scale, but securing credit cards for sole proprietorships may still prove advantageous.

How to apply for a business credit card as a sole proprietor

Applying for a business credit card as a sole proprietor follows a similar process to applying for a personal credit card. Here are the steps to take:

1. Do your research: Identify credit cards that are open to sole proprietors, and eliminate those with unfavorable terms.
2. Gather required information: Collect necessary documentation such as your tax ID number (either your employer identification number or Social Security number) and financial documents that prove your income.
3. Complete the credit card application: Fill out the online application, providing all required information. If you have all the required information, you can fill most out in less than 30 minutes.
4. Wait for results: Some credit card issuers offer immediate decisions, while others require manual review. Once approved, you can use a digital card while waiting for the physical card to arrive.

Can I apply for a business credit card with my EIN number?

As a sole proprietor, you can apply for a business credit card with your EIN number if you have one. Sole proprietors aren’t required to have an EIN number, but you may want to get one in order to avoid using your Social Security number when applying for credit cards and loans.

Does sole proprietorship affect your credit score?

If you’re a sole proprietor, applying for a credit card with a personal guarantee can affect your credit score.

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Your business isn’t its own entity, so many credit card and loan applications will pull from your personal credit history. That leaves you personally liable if your business can’t repay its debts, affecting your personal credit score.

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If you aren’t approved for a small business credit card now, you can do a few things to strengthen your application in the future, including:

• Reduce the balance on personal credit cards. The more unused credit reflected on your credit report, the better.
• Pay all bills on time every month. Late payments are reflected on your credit report after 30 days and can have a negative impact on your score.
• Reduce the number of delinquencies and collections on your credit report. Secure a free copy of all three credit reports to see what negative reports are currently counting against you. Dispute any that are inaccurate or incomplete. You can often request removal from your report in exchange for full payment for valid delinquencies or collection accounts.

Consider a corporate card once your business is established

Ramp’s corporate cards offer an alternative to traditional business credit cards. If you have an EIN number and at least $75,000 in a U.S. business checking account, you could qualify for Ramp.

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Our cards provide features that help track and report business expenses, while also helping you build business credit. Ramp corporate cards are suitable for all business structures, with free employee cards if you decide to expand your team.

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Consider Ramp corporate cards as a way to separate personal and business expenses, track your finances accurately, and simplify tax reporting.