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.
How to Build an Emergency Fund
When the next financial emergency happens, will you be prepared? That’s the question you should be asking yourself right now. Sure, you can buy all the necessities like food and toilet paper, but another way you can protect yourself financially is by having an emergency fund.
In this article we’ll look at how to build an emergency fund. We’ll cover the importance of having a security net for uncertain times, tips on how to save for one, what the fund should consist of and taking into account how risky or secure your occupation is.
The Importance of Having a Security Net for Uncertain Times
An emergency fund is a lot like insurance. You don’t realize you need it until something bad happens in your life. When that "something bad" does happen, you’ll thank your lucky stars that you have an emergency fund.
At the beginning of 2020, most people were aware of Coronavirus, but didn’t see it as a big threat. This was a virus that was mostly in Europe and Asia. Why should we worry? But this suddenly changed. Fast forward to March of 2020 and many non-essential businesses are closed. This has put a lot of people out of work. Sure, the government may be providing some financial support, but in a lot of cases it’s simply not enough.
In light of COVID-19, many people are now worrying about rent and mortgage payments. Worrying about money is never fun. It’s stressful enough when you’re on your own, but it’s even more stressful when you have a family to take care of. This is where a financial "security net" can come in handy.
A security net, otherwise known as an emergency fund, is savings you put away for a rainy day. These savings are designated to cover any future mishaps and unexpected expenses. In terms of future mishaps, this could be getting laid off from work or being too sick to work. Sure, there’s insurance to protect you, but insurance often only pays you a portion of your regular paycheck; that’s when having an emergency fund can come in handy.
There are also the unexpected expenses. Examples of unexpected expenses include your car breaking down, your roof needing repair from a surprise windstorm or your child needing orthodontics.
Without an adequate emergency fund, you’ll find yourself going into debt to pay for these expenses. If you have to charge these emergency expenses on your credit card, this will only add to your stress level. By having an emergency fund, you could dip into it during times of need and avoid racking up high-interest debt.
Tips on How to Save for an Emergency Fund
My best tip is to save ahead of time for a financial emergency. By the time the next emergency happens, it will be too late. If you don’t already have an emergency fund, start putting some money away today.
How much money should your emergency fund have? It depends on how stable your job is (more on that below). Financial experts recommend keeping between three and six months’ living expenses in a high-interest savings account.
But coming up with three to six months’ living expenses all at once is tough. Luckily, you don’t have to. If you don’t have an emergency fund or you don’t think your emergency fund is sufficient, start saving right away.
Put away whatever money you can afford from each paycheck towards your emergency savings. It may be $200, $100 or even $50, but at least by doing that you’ll be building up an emergency fund over time.
Make your savings automatic. Have it so the money is automatically put into a separate savings account when you’re paid at work. You’ll barely notice the money is gone and you’ll be less likely to be tempted to spend it.
Likewise, set up a separate savings account for your emergency savings. This is a far better approach. Don’t combine it with your savings account for your vacation. The last thing you want to do is deplete your emergency savings account to go on a family trip, only to come back and find your basement flooded at home.
What Your Emergency Fund Should Consist of
Financial emergencies often come up out of the blue. For that reason you want an emergency fund that’s easily accessible. Most people would be well-served by stocking away their emergency savings in a high-interest savings account. Not only can you earn a decent interest rate, the money is easily accessible when you need it most (highly liquid). It’s best to stay away from the stock market for your emergency funds. The last thing you want is for the stock market to crash and the value of your investments to plummet, leaving you with not enough money to take out in an emergency.
What your emergency fund should consist of depends on your income, lifestyle and size of family, among other factors. If your employment situation is unstable, you’ll need a more sizable emergency fund. If you live a lavish lifestyle and don’t want to scale it back when times are tough, you’ll need a larger emergency fund. If you have a big family, you’ll need a larger emergency fund. Are you seeing a trend? You get the picture.
How Risky or Secure Your Occupation Is
Something else to consider when building an emergency fund is how risky or secure your occupation is. In a recession, how secure would your job be? If you’re a full-time permanent salaried employee with the government, you probably have less to worry about than someone working in the hospitality industry. Although even if you work for the government, your job isn’t necessarily 100% secure. A shortfall in the government budget or a change in government could mean you’re out of a job, so it’s always a good idea to plan for the worst and have an emergency fund, even if you think the chances of this happening are slim.
Likewise, if you’re in an industry like hospitality or the airline industry that could be severely impacted by a downturn in the economy, you’ll certainly want to make building an emergency fund a top priority. Your job may be stable right now, but who’s to say it will be stable over the next year, six months or even three months?
How to Build an Emergency Fund: the Bottom Line
Recessions can often happen fast. You may think you have enough time to put money away if you anticipate you could be laid off in the coming months, but sometimes things can happen really quickly with little warning (like the recent Coronavirus pandemic). It’s better to plan ahead rather than being caught off guard the next time a financial emergency happens. Now that we've gone over how to build an emergency fund, you can see that's it's not a complicated task, just one that requires a fair bit of discipline and smart planning.