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.
Making Smart Decisions
What exactly does “living within your means” mean, anyway?
Let’s find out. We’ll take a closer look at the term and how you can better live within your means.
What Does It Mean?
Simply put, “living within your means” involves a person only spending what they make and not a nickel more. Somebody who is living within their means will ensure they don’t overspend and go into debt.
The concept becomes trickier once we think about it a little more. Let’s look at an imaginary person who makes $5,000 per month after taxes. This person spends $3,000 on their fixed expenses and $2,000 every 30 days on designer shoes. We’re talking dozens of pairs each year, all worn a handful of times before being stuffed into the back of some closet.
Technically this person is living within their means. They’re worth nothing outside of whatever the shoe collection is worth, but they’re not going backward. This person is in a good place compared to somebody who has to borrow $50 per month to put food on the table.
Are You Living Within Your Means?
The equation to figure out whether you’re living within your means is ridiculously simple. Even you math haters can handle it.
Income - expenses = >$0
That’s it. Easy, right?
It’s usually pretty easy to tell whether you’re living within your means. If you have no savings, every month you stay above zero is a win. Even if there’s only $5 left at the end of the month. And if you do have a couple of bucks stashed away, the goal is to make sure that balance is going up each month. Or at least you’ll want it to stay the same.
The key to figuring out whether you’re living within your means is knowing what your income and expenses are. Make sure you’re using after-tax dollars for your salary when figuring out your budget. And make sure you tally all your expenses. Things have a way of adding up. It’s a good idea to estimate potential expenses a little on the high side.
How You Can Do It
If you’re currently going backward each month, don’t sweat it. We can help. Here are some ways you can better live within your means.
The first step is to take a look at your expenses. Most people spend more than 50% of their income on just three categories:
- Housing
- Transportation
- Food
These categories are where you’ll want to start. They’ll get you the best bang for your buck when trying to cut expenses.
Take a critical look at what you pay for rent each month. Could you survive in a smaller space? Do you really need that second bedroom? Moving is a lot of work, but it’s worth it to save hundreds of dollars each month. Or, if you don’t want to move, invite a friend to move in and split the rent.
Transportation is another easy category to cut. You might not even need a car if your city has a good public transit system. Moving closer to work can save both housing and transport costs, especially if you end up within walking distance of the office. Or maybe a cheaper car is the answer.
Let’s pivot to food. Most millennials — myself included — spend way too much money eating out. There’s nothing wrong with this, provided you can afford it. If you’re spending too much every month, cutting back on restaurants is an easy way to free up a couple hundred bucks. Saving money on groceries is easy too, provided you meal plan around sale items rather than what you might really want.
Is credit card debt getting you down? Then find ways to get that payment lower. Transfer the balance onto a card with a lower interest rate. Or try to consolidate the debt into something that increases your monthly cash flow — even if that entails paying a little more in the long-term.
Remember the Top Line
Many savers focus on expenses, since they’re the low-hanging fruit. I’d bet even pretty frugal folks can find a few hundred dollars of fat in their spending.
But we shouldn’t forget about the other half of our equation. Income matters too, and there are easy ways to increase that number. And remember, somebody who’s working more will spend less cash on leisure activities.
The easy way to earn more is to sign up for more hours at work. This is especially lucrative if you’re paid hourly. If you’re on salary, then get a side hustle. There are hundreds of things you can do to make a little extra cash, and some of these activities have other positive side effects too. Reffing junior sports will help keep you in shape, for example.
Combine a little extra cash with a little less spending and you’ll get that much closer to living within your means.
Have an Emergency Fund
Many folks can keep themselves afloat on a month-to-month basis, but get into trouble when unexpected expenses come up. A medical emergency or unexpected car repair knocks them into debt, a hole they can never climb out of.
The key is avoiding this in the first place. An emergency fund will allow you to pay for unexpected expenses while keeping your month-to-month cash flow intact. You’d then slowly contribute back to the emergency fund until it’s fully funded again.
Some folks insist on keeping three months’, six months’, or even a year’s expenses inside their emergency fund. I’d start with $1,000 and work up from there.
Even once your emergency fund is full, don’t stop saving. Start putting cash into your retirement accounts or start planning for a new car once the old one wears out.
The Bottom Line
If you’re not currently living within your means, don’t sweat it. By using a combination of cutting expenses and increasing your income, you can get there. It might take drastic moves to cut down your lifestyle, but you’ll feel great once you start making financial progress each month.
An emergency fund will also help with those unexpected expenses, annoying things that pop up at the worst times.
Life is better lived without financial stress. You can get there. It’ll be worth all the sacrifice.