Should I get a business credit card for my small business?

Summary

•  Having a credit card for your small business could help you separate your personal and business expenses and make financial management easier.
•  Business credit cards typically offer higher credit limits, which can give you more purchasing power to cover expenses like inventory and equipment.
•  Many business credit cards offer rewards tailored to your business needs so you can earn cash back and points on categories like office supplies and travel.

Watching your small business grow is a great feeling. Watching its finances get more complicated? Not so much. As your business expands, you might have considered getting a small business credit card to help make operations smoother and simpler. A credit card is a great tool to use as you build your business, but knowing when it’s the right time to get one can help streamline your financial management.

 

5 Questions to ask yourself getting a business credit card

1. Do I need to separate business and personal expenses?

Brand new businesses might have so few expenses that it’s easy to separate personal and business spending while using the same credit cards and bank accounts. However, once your sales begin to increase or your expenses grow, keeping things straight can become challenging, especially when tax season comes around.

A business credit card makes it easy to separate business expenses, so you’ll know exactly how much you spend each month. Pairing a business card with a business checking account can legitimize your business finances and make it easier to understand exactly how much money is flowing in and out of the business.

2. Do I need more purchasing power?

As your business brings in more revenue and customers, your operation costs might increase. If you’ve been using your personal credit card for business expenses up to this point, you may find that its limit is no longer high enough to make the purchases your business needs.

A business credit card with a higher credit limit can enable you to make large purchases like inventory or equipment that help your business grow. Similar to how you would manage your personal credit card, you’ll want to ensure you keep your credit utilization, or the amount of money you spend relative to your available credit limit, relatively low at under 30%.

Having a low credit utilization rate and a realistic repayment plan you can stick to will help you build a credit score for your small business  over time. This could make it easier to apply for financing in the future.

3. Could I benefit from the rewards a business credit card offers?

One big difference between personal credit cards and business credit cards is the reward categories. Personal credit cards often offer cash back in common consumer spending categories, like restaurants, entertainment or grocery stores. These are great if that’s where you’re spending your money, but they don’t tend to help small business owners who have a unique set of expenditures.

Finding the right business credit card to fit your business’s spending needs could help you maximize rewards to redeem later for a statement credit, travel perks, or a deposit into a qualifying bank account.

As you research credit cards, look for ones that offer rewards in the categories you know you’ll be spending money in each month. For example, if you and your team travel frequently, you might want to consider a card option like the U.S. Bank Business Altitude™ Connect World Elite Mastercard®, which offers points on prepaid hotels, car rentals and travel.

Another example of a great card option is the U.S. Bank Triple Cash Rewards Visa® Business Card, which offers cash back rewards for expenses like office supplies and phone bills that could save you money in the long run.

4. Do I qualify for a business credit card?

There are several things banks consider as they decide whether to approve you for a business credit card, including:

• Annual business revenue: Generally, the larger your annual revenue, the more likely you are to have an application approved. Banks may approve you for a business card with little or no revenue, although you may have fewer card options and less favorable interest rates and card terms.
• Business credit score: If your business has one, banks may review your business credit score as a measure of financial responsibility. However, not all credit cards and card providers require a business credit score, especially if you’re a new business. In lieu of a business credit score, the bank is likely to review your personal credit score instead.
• Personal credit score: If your company doesn’t have a business credit score, you may need a good personal credit score to get approved for a card. A low score doesn’t make it impossible, but it is a deterrent for many banks. If your credit score is low, consider improving it before applying for a business credit card. Doing so may help you access a wider variety of cards that might better fit your business needs.

5. Do I have everything I need to apply?

Before applying for anything, take stock of your personal and professional financial standing and get all the correct documents in order. You’ll need these basics:

• Business’s legal name
• Contact information for your business
• Contact information for you, including credit history and SSN
• Industry type (ex: restaurant, salon, etc.)
• Legal structure (ex: corporation, nonprofit, LLC, etc.)
• Time in business
• Number of employees
• Federal Tax ID (or EIN)
• Annual business revenue and average monthly spend
• Your personal annual income

Once you’ve gathered everything you need, you’ll be ready to start the process of applying for a business credit card.

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