Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.
The Credit Card Dilemma
In terms of proper credit card usage and pursuit, there are a few “age-old” debates that continue to come up and be debated amongst experts and knowledgeable figures in the field of personal finance.
Today, we will cover the long-standing debate of cash back or rewards credit cards – which is the better option and why? As is usually the case, everyone has different circumstances and preferences in their life, meaning there is not a single optimal solution. Depending on your lifestyle choices and preferences, there is almost certainly an option below that will suit you – make sure to evaluate the pros and cons of each before making a decision!
Cash Back: The Simplest Option
Realistically, cash back is the simplest option for credit cards and ultimately gets mixed reviews due to that simplicity. For those who lack the finance background or skills to sufficiently deep-dive and understand various credit card options and alternatives, the cash back option is typically the most attractive and fitting – they’re the easiest to understand.
Cash back credit cards give the user a fixed amount for every purchase you make. Oftentimes, these cards will also give extra rewards for specific types of transactions like groceries, gas or pharmacies. Given the ability to easily project and predict the cash rewards for transactions, these cards are perfect if you tend to budget regularly.
Below is a breakdown of the pros and cons of cash back cards.
Pros
- Easy to budget for future rewards.
- Fixed rate of cash back on every transaction.
- Flexible use terms.
- Generally free cards.
Cons
- Less specialized rewards.
- Lower benefit compared to rewards cards.
- Not able to take full advantage.
Generally speaking, cash back credit cards are easiest to use due to their simplicity; unfortunately, that comes with the inability to maximize your returns or “advantage” from the rewards.
Rewards Cards: Hard Work Can be Worthwhile
Contrary to the simplicity of cash back credit cards, rewards cards are much more specialized and consequently more difficult to use. These cards will often have some type of annual fee for the applicant to pay; however, this annual fee can quickly be covered by the earned points and rewards.
Similar to cash back cards, rewards cards will often have extra rewards on specific transactions like groceries, hotel and restaurant purchases. While these cards are more difficult to calculate rewards (and consequently more difficult to use for a budgeting plan), if done correctly, there is often a significant amount of money left on the table for the card user.
Below is a list of pros and cons for rewards cards!
Pros
- Ability to maximize rewards.
- Specialized cards.
- Typically higher “point” values.
Cons
- Annual fee.
- More work to understand and use.
- Steep learning curve.
Rewards cards are more difficult to learn and understand; however, that work comes with added benefits and potential rewards.
An added benefit to rewards cards that must be discussed hinges on the variety of rewards cards. While cash back cards are standard across the board, reward cards vary significantly. Each individual has different lifestyles and tendencies; thus, different rewards cards will be suitable for different people.
When boiling down rewards cards to the core types, you have the following options: airline cards, hotel cards, store cards and general travel cards. Airline cards are credit cards that reward you with miles and in-flight rewards. Hotel cards offer similar rewards by providing discount rooms and the ability to get comped on stays! Store cards tend to be more specialized; users tend to apply for these cards if they regularly shop at a store and want to receive percentage discounts on purchases and rewards points on each transaction.
A general travel rewards card will reward you with points that can be spent at varying hotel and airline partners, providing both flexibility and specialization at the same time.
It Is Your Call to Make!
As is often the advice with every article that I write, the decision is yours to make and is largely dependent on your circumstances and desires! If you travel often or want to travel first-class, for example, it would probably make sense to use a rewards card rather than a cash back card.
On the contrary, if you prefer the most simplistic and streamlined credit card use process, it would make the most sense to use a cash back rewards card – this will lead to the least work and effort to earn cash on your transactions!