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How a Business Credit Card Gives You More Purchasing Power

AUTHOR: Kevin Jaskolka

Small business owners are often looking for ways that they can successfully grow their business - working on new marketing tactics, cutting down costs and perfecting their products. As they head into the new year, they may look into investing in growth projects, but to expand their business and increase revenues, they’ll need working capital. Utilizing business credit cards can be incredibly useful for covering expenses while potentially garnering rewards and benefits. Here we’ve laid out the perks of incorporating a business credit card into your plans for growth.

You don’t need to be a large business to get one

It is a common misconception that one needs to have an incorporated business with its own tax ID number or employee identification number in order to apply for a business credit card. However, each credit card company has its own requirements for those who are applying, and the minimum requirement for information varies between them.

According to The Points Guy, some are flexible - like Amex. Chase, on the other hand, is notoriously the toughest. They require proof of business, including a government EIN and business account information. Most small businesses start as simple Doing Business As (DBAs), which indicates that a business name used by a person is different from the person’s true name. Someone who has a small store on Etsy or eBay and wants to separate those finances from their personal accounts, logically would want to incorporate a business credit card in their wallet.

Pro tip: Typically, one can provide their Social Security number when asked for an EIN and it’ll suffice. Of course, it is important to note that even with a small business, one should be sure to use their business credit card only for business expenses.

Business cards don’t affect a personal report

Business cards are still personally guaranteed, so banks will use one’s personal credit report to assess their credit line. But, this initial inquiry is the only time that the business credit and personal credit will intermingle. Otherwise, it stays separate from a personal credit line so factors related to business will have no effect on one’s personal credit report. This is a perk for those who are running big balances on their business cards - but that doesn’t mean reckless spending won’t backfire.

If a business owner defaults on their business credit card, an issuer can come after the business owner personally, since the card was guaranteed by personal credit. During tax season, business owners won’t have to sort out business and personal transactions, thanks to having separate accounts, AllBusiness stated.

Rewards

Most banks offer a form of transaction or expense management on business credit cards to help business owners stay organized - and some may offer free employee cards, which is beneficial for racking up rewards even quicker. Some may even offer purchase and return protection, that will prevent your business from being financially responsible if expensive products purchased on the card are lost or damaged. Business owners may even find that they have a whole new set of bonuses through their new credit, like rewards and bonus points. They also offer unique bonus categories that aren’t typically offered for consumers with personal credit cards. That may include rewards that come from:

  • Airfare
  • Purchases spent on advertising
  • Purchases for shipping
  • Purchases at gas stations
  • Purchases at restaurants
  • Purchases from specific technology providers
  • Travel - including hotels, rental cars, train tickets and taxis
  • Internet, cable and phone services
  • Advertising through social media and search engines

Establish a business credit history

Since a business’ line of credit is separate from personal accounts, business owners need to build their credit in order to apply for loans for purchases, real estate or other large expenses. Banks will look at a business’ line of credit to determine an interest rate. A business with a more established credit line will most likely get better rates.

With business credit cards that offer higher lines of credit than a personal alternative, a small business has a better chance of getting off the ground. Having business credit cards and using them responsibly will boost a business credit rating quickly. Working with suppliers who report transactions to credit bureaus will help this growth.

Financial Cushion

A credit card can provide business owners with a financial cushion when their balances due have not yet been paid by customers, or sales are slow and the business is short on cash.

Utilizing a business credit card can provide their company with more purchasing power, through demonstrating the growth of their business and establishing credit history. When thinking of expanding, businesses may want to consider their options - like utilizing equipment loans as a way to grow. To learn more about alternative choices to build purchasing power and working capital, contact Select Funding today.

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