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 Impact of Investing in Property Loans
Real estate investment is a great way to create generational wealth – but to buy that fixer-upper property across town, you need a way to get the money. Enter: Investment Property Loan.
Investment property loans are conventional, HELOC and private money loans that lenders make, using investment properties as collateral. Each of them is capable of providing the much-needed cash to start construction on your first (or twentieth) real estate investment deal.
Different Types of Investment Property Loans
How do you know which investment property loan is right for you? The answer will vary based on many factors.
According to the Urban Institute, somewhere between 13-16% of investment property loans are declined.
By understanding the various types of investment property loans, you’ll be better equipped to choose the right property financing for your next investment and get approved for your next investment property loan.
Conventional Bank Loans
When you think of getting a loan, you probably think about banks first. Traditional lenders can be a great option.
To secure a bank loan for an investment property, you’ll need great credit (680 or better) and a little buffer time before you need to close. These loans will take longer (about 30-45 days according to Investopedia) to close, but the rates will be more competitive than hard money and private money.
Requirements vary by lender, but generally, lenders require borrowers to have the following:
- 25% down payment.
- A 680+ credit score.
- A DTI (debt-to-income) ratio of below 50% (although it depends on the loan type and the income from the property can be forecasted to your current income).
- Documentation: two years of tax returns, two years of W-2s and two months of bank statements at a minimum.
Hard Money Loans
Hard money loans are a great way to secure investment financing quickly, especially if your credit isn’t awesome. Because of the quick turnaround and flexible requirements around credit score, you’ll likely be agreeing to a higher interest rate.
Many hard money loans only require you to make interest payments on the amount that they give you. This means you keep more cash in hand while working through your project, which generally lasts between 6-18 months. You can make a large payoff once you’ve sold the property or refinanced into a longer-term loan.
While hard money loans are more accessible and offer faster closing times, the rates are typically much higher than conventional loans.
Hard money loans also typically use the property itself as collateral (or some other type of collateral that you can offer, such as your car or primary residence). If you end up failing to make the payments, the lender can seize these assets, making hard money loans a bit riskier than many other options.
Private Money Loans
Private money loans are obtained through an individual – usually a family friend or someone in your community or network. Each investor has unique expectations: They may even have no set requirements other than a cool project on a street they like.
The investor sets the terms – perhaps relaxed payment expectations and low-interest rates – and can work with you to adjust those as issues come up in the project. Since it’s an individual deciding what to do with their own money, a private money loan can be less reliable than an institution. Yes, they can adjust when your needs change, but may just as quickly pull back their investment when their needs change.
The best part is building a relationship. You have the opportunity to partner closely with someone on the project. This brings returns to both you and someone you trust (rather than a large institution). If things go south, it can be easier to reason with an individual, as well.
Tapping Home Equity (HELOC or Cash-Out Refi)
Tapping into your home equity requires prior investment in your primary property. That could be either through value-add improvements or equity that’s built up over time.
You may also be able to tap home equity through a cash-out refi. You essentially take out a new loan for more than you currently owe on your house. The amount beyond paying off the previous mortgage becomes cash in hand to put toward your next investment property.
How To Decide Which Type Of Investment Property Loan Is Right For You
There’s no one-size-fits-all investment property loan. Talk to trusted advisors, take time to analyze the investment property and think about your exit strategy for the property financing. All of these considerations will impact which loan will work best for you.