Business credit cards for startups: How to get one in 2023
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Business credit cards are an essential tool for many startups and small businesses. After all, it typically takes money to make money, and credit cards provide the capital entrepreneurs need to build their businesses. But that’s not the only benefit of having one of these plastic cards in your wallet.
The best business credit cards for startups don’t just give you access to capital; they provide effective tools and integrations for better accounting and money management, saving you precious overhead dollars. They also help you manage cash burn, giving you a longer runway with the money you have access to. Not to mention, these cards also give you access to rewards and perks that may have a real impact on your bottom line, especially as you build your budding company.
However, there are several things you should know before you apply for a business credit card offer. In this article, we'll share everything you need to know before you apply.
Can you get a startup business credit card?
Short answer: It can be difficult to get a credit card for a startup, but not impossible. business credit cards are typically reserved for businesses with well-established credit or for owners who are willing to put their personal credit and financial stability on the line to fund their businesses. As such, many startups find difficulty in accessing traditional business credit cards. But if you have a good cash balance in the bank and at least one year of sales history, you might be qualified for newer corporate cards available on the market.
Choosing the best startup business credit card for new businesses
When you open a business credit card for the first time, you start a new financial relationship. And from the day it starts, it will either serve to help you grow your business, or act as a thorn in your side until you cut things off.
So, it’s important to do your research and choose to start a relationship with a financial institution that offers you all the tools you need for success. Consider the tips below as you decide which business credit card is best for your startup.
1. Know the eligibility requirements
Each unique business credit card comes with its own eligibility requirements. To qualify for most offers, you typically need at least the following:
- Good credit: The highest-quality business credit cards typically require a personal guarantee from the business owner that’s backed by a credit score of 700 or higher. So, you’ll likely need good personal credit to qualify. However, if you have an adequate business credit history, you may be able to bypass the personal guarantee and credit check.
- Proof of profitability: It may be difficult to qualify for a business credit card if your company isn’t profitable yet or if it isn’t producing a profit margin that’s high enough.
- Agreement among ownership: If your startup is a partnership, lenders will typically require all members of the partnership who own more than 25% of the business to agree to open the account. As such, in most cases, anyone who owns more than 25% of your business will likely need to be listed on the application, including their names, addresses, birthdays, and social security numbers.
If you don’t meet the requirements above, don’t worry; you’re not out of luck just yet. Some corporate cards can use your sales data in lieu of years of business credit history or a personal guarantee to underwrite your business.
2. Look for rewards that help your startup
Rewards have become commonplace in the credit card industry. Rather than looking at rewards programs and additional perks as extras, consider them as essential tools to help you grow your company.
For example, you may be intrigued by a credit card that offers travel rewards. But if you don’t travel for business, those rewards do nothing to help your company grow. Even if you do, the complexity of these programs often makes them difficult to use.
Instead, consider looking for a credit card that offers a simple cashback rewards program—one where you know the value of the rewards every time you make a purchase. Moreover, look for credit cards that offer additional perks like software discounts, expense management tools, and accounting integrations that will help your business grow.
3. Evaluate potential fees & interest
Interest is the most expensive fee you’ll pay when you carry a balance from month to month on a credit card, business or otherwise. So, it’s important to look for an option that comes with the lowest interest rate you can qualify for if you’re not able to completely pay off your balance each billing cycle.
However, interest isn’t the only fee you’ll pay when you use these financial tools. Some other typical fees to consider include:
- Annual fees
- Cash advance fees
- Balance transfer fees
- Foreign transaction fees
- Late payment fees
- Returned check fees
Make sure you’re aware of any and all fees you may be required to pay before you fill out any business credit card application. Or, you can avoid those fees by taking advantage of corporate purchase cards. These are charge cards, alleviating interest fees.
4. Compare terms & conditions
Although fees and rewards will likely be your central focus as you compare credit card options for your startup, you should also carefully read the terms and conditions. Why? Each lender has specific rules that could impact how your credit card affects your business finances.
For example, some credit cards automatically revert to a default interest rate if you make a single late payment. In other cases, you won’t experience a default rate unless you completely miss a payment or make multiple late payments over a predetermined period of time. This is just one example of the countless areas where differences in terms could impact your business. Moreover, as the business owner, you may be personally liable if the business is unable to make payments, which could lead to collection actions, poor credit, and even bankruptcy.
5. Look for spend management features
Quality spend management is essential for every business, but it can mean the difference between growth and bankruptcy for startups. The best cards now come with spend management software. Some features to look for include:
- Employee cards: Empower your employees to make purchases for your business while limiting where and how they spend company money. This also alleviates excess overhead associated with reimbursement programs.
- Real-time reporting: Keep track of the categories you spend the most in and look for automated savings insights to optimize your spending, such as duplicate software subscriptions or redundant vendor spend.
- Receipt matching: Don’t waste hours each week matching receipts to purchases. Take advantage of software that automatically handle this mundane task for you.
How to get a business credit card for a startup
So, you’re ready to get a business credit card, but what are the steps to doing so? Read on to learn everything you need to know.
1. Building credit history
If your business isn’t at least three years old, you’ll likely need to rely on your personal credit for access to a business credit card. Even if your business is over three years old, if it doesn’t have any credit history, you’ll need to rely on your personal credit score.
As such, it’s important to work on your credit history and improve your score. You can do so by opening and using a secured credit card, a credit card that requires you to make a security deposit that becomes your credit limit. The good news is that once you do get a business credit card using your personal credit, you’ll start building your business’s credit score. And as long as you use your credit card responsibly, your business will qualify for a credit card on its own in time.
2. Required documents
Once you find an offer that meets your business needs, it's time to submit an application. In most cases, you’ll be required to submit a series of documents for review by the lender’s underwriters. These documents typically include:
- Identification documents for all owners who hold more than a 25% stake.
- Your incorporation documents to prove the number of years you’ve been in business.
- Your most recent financial data including P&L reports. Some lenders may also ask for bank statements.
- Documents for personal assets. Keep in mind, you may be required to make a personal guarantee to access credit for your startup. This could mean securing the credit with your home, car, boat, or any other property.
3. Wait for approval
Several factors play a role in the amount of time you may have to wait for approval. In some cases, you’ll receive an instant decision in a matter of seconds. If the lender needs more information or further review, the process may take anywhere from a couple of days to a few weeks.
What credit limit can you expect?
The average business credit card limit in the United States is $56,100, but your limit may differ significantly from national averages. That’s because a lot of data goes into calculating the credit limit your business qualifies for. Some key factors involved in the calculation include:
- Your credit score: Those with the best credit scores will likely enjoy higher credit limits.
- Your company’s profits: Credit card companies are only going to lend you money they believe you can pay back over time. The higher your profitability is, the more access you'll have to the capital needed to pay them back. As such, higher profitability typically equates to higher credit limits.
- The offer you choose: Some lenders have a reputation for offering higher credit limits than others. However, a high credit limit may not be more beneficial than other tools. So this shouldn’t be your sole basis for choosing one offer over another.
- Underwriting style: Some lenders follow traditional underwriting methods to determine your credit limit. That means it’s based on a mix of your credit score, revenue, profitability, and other financial metrics. On the other hand, sales-based underwriters base their decisions on the sales you generate. This style of underwriting can results in credit limits that are up to 30 times those of cards with a traditional underwriting process.
There are a few things you can do to improve your chances of approval for a business credit card and higher credit limits. Those include:
- Work on your personal credit: The better your personal credit score is, the better your approval chances are for your business credit card application.
- Prepare: In some cases, an inability to provide the specific information the lender requests can result in your application being declined. Take time to get your documents together and form an accurate understanding of your business’s finances before you apply for a credit card.
- Be picky: Don’t blindly apply for several cards. Instead, apply for cards that match your credit profile. Look into the requirements of each offer your interested in and make sure you meet those requirements before you apply.
- Reduce your credit utilization ratio: Reducing your personal credit utilization ratio may result in better approval odds and higher credit limits on business credit cards.
What you can use your startup business credit card for
Here is a general list of items you can (and should) use your business credit card to pay for:
- Technology (hardware and software)
- Marketing and advertising expenses
- Office supplies
- Business insurance and licenses
- Internal and external-facing office events
- Business travel expenses
The list above includes things that most businesses rely on business credit cards to pay for. However, it’s not an exhaustive list. The items listed below can also be paid for using a business credit card, but be careful not to do so if you can’t pay the balance. Otherwise, you might find yourself having to pay interest on the following:
- Office leases and/or mortgage payments
- Business travel upgrades
Before you start using your business credit card, take some time to project out your expenses over the next few months and ensure that you’re not overextending your resources. This exercise is really difficult to do manually, which is why Ramp’s customers rely on its platform to automatically identify every overspend instance and enable them to make smarter spending decisions.
Alternative for startups: corporate cards
If you need a spending card, see if you qualify for a corporate card. Unlike business credit cards, you don’t have to make a personal guarantee. You can avoid late payment fees, interest, and other fees since corporate cards are usually linked to your bank account so you pay off your balance in full each month. Corporate cards also typically come with more robust spend management software that can help you close your books faster and extend your financial runway longer.
Get Ramp to access the capital you need
You can avoid much of the headache associated with a typical business credit card by choosing to use Ramp. With Ramp, you get access to the capital you need and much more. Some of the most exciting features of Ramp include:
- Free to use: Get started with Ramp’s corporate card for startups and finance automation software for free. No annual fees or setup fees.
- Unlimited employee cards: Empower your employees, eliminate reimbursement-related overhead expenses, and set spending limits to protect your company’s capital.
- Receipt automation: Automatically collect receipts from your employees to cut hours out of your monthly accounting process.
- Accounting integrations: Connect Ramp with leading accounting platforms like QuickBooks, Xero, Sage Intacct and NetSuite and close your books 8x faster.
- Immediate savings: Unlimited cashback and automated spending insights mean businesses save 3.5% on average.
When companies like Webflow used Ramp, they reduced their credit card reconciliation time by 75%. WizeHire used Ramp to save over $100,000 per year in SaaS expenses and reduced the time they spent closing the books each month by 7 days.
The requirements for a business credit card for new businesses are typically as follows:
- A business owner’s personal credit score of 700 or above unless the business itself has adequate credit history for approval.
- Meaningful business profitability.
- All parties who own 25% or more of the business must agree to open the account.
Keep in mind that each offer is unique and each lender may have a different set of eligibility requirements.
Business credit cards help build business credit by establishing a credit history. Lenders use credit history to determine the likelihood of your business paying its loans back as agreed. For example, if your business has never missed a credit card payment but has actively used one for four years, there’s a high likelihood that you’re able to manage spending and responsible enough to pay as agreed in the future.
On the other hand, business credit cards can harm your credit if you use them improperly. After all, if you establish a history of late payments, lenders will be less likely to approve your future loan requests.
Yes, new businesses with no credit history can get approved for a business credit card with no personal guarantee as long as the business owner has good personal credit and is willing to pay the money back if the business becomes insolvent. Unfortunately, if you don't have a personal or business credit history, you'll find it nearly impossible to access a business credit card — that is, unless you take the secured credit card route.
If you make late payments, the lender may start by increasing your interest rate and charging late payment fees. If you miss payments for too long, the lender will likely close your account and send it to collections. They may also choose to pursue legal action.