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 Million Dollar Question
Which Should You Choose?
Well, to be frank, there isn’t a better answer to this question. In the world of personal finance, the question of a personal loan versus credit cards and which is better has been a relatively long-standing one. Realistically, the answer is very dependent on your individual circumstances and the situation that you face. We all have different credit histories, credit health and problems we face. Depending on those combinations, it will likely make more sense for you to choose a personal loan over a credit card (or vice versa).
Before making such an important decision, let’s discuss the general background of these two options and explore how they are similar and different. A personal loan, on the one hand, is a one-time payment of cash with fixed or variable monthly payments.
Generally speaking, individuals will use a personal loan for one-time fees or expenses that they cannot pay upfront. Fortunately, stipulations about how an individual uses the proceeds from their personal loan are virtually non-existent – so long as you aren’t paying for student loans or illegal activities, it is likely covered!
On the contrary, a credit card is essentially a revolving credit line that can be regularly used and paid back. Again, how you can spend funds from a credit card is virtually unlimited – the biggest difference between the two hinges on the fact that a personal loan is a one-time payment while a credit card is not.
Pros and Cons of Personal Loans
- Lower interest rates.
- Set, fixed monthly payments.
- Great for building credit.
- Relatively easy to get approved.
When taking out a personal loan, arguably the biggest selling point for applicants revolves around the interest rates when compared to credit cards. The average interest rate for a 24-month personal loan is 9.65%, significantly lower than the typical 20-25% rate that most credit cards charge. Additionally, by offering a set monthly payment, individuals can budget accordingly and know what to expect on a month-to-month basis. Personal loans are relatively easy to get approved and are great for building credit!
- One-time funding instance.
- May incur additional fees.
- Does not offer rewards.
- Not great for smaller, frequent expenses.
Unfortunately, with a handful of positives typically comes some negatives to balance it out. In the case of personal loans, these negatives tend to come via additional fees and a lack of rewards. When using a credit card, you are aware of any annual fee on top of your interest rate and you will generally earn rewards for each spending instance you put on the card.
Personal loans, unfortunately, are a one-time funding moment – when you use up that money and pay back the loan, your commitment is done. You will not receive additional money like you could via a revolving line like a credit card.
Pros and Cons of Credit Cards
- Revolving credit line.
- Earn rewards on spending.
- Many include grace periods.
- Regular availability and usage.
- Potential limit increases.
Credit cards’ most prominent benefit surrounds the fact that they are essentially revolving credit lines for the applicant – unlike a personal loan, they can be used as often and regularly as desired. With continued spending, you are likely to earn rewards that can be applied to future purchases; it’s almost like you are paid to use a credit card. Oftentimes, credit cards offer grace periods of ~21 days, and the individual will be free of any interest charges if they pay off their debt within that time. Plus, the more regularly you use the card and build your credit, the more potential for limit increases!
- Ease of use.
- High-interest rates.
- Annual fees.
- The low minimum payment can result in growing debt.
Unfortunately, the ease of use of credit cards is often a double-edged sword. Given how easy and simple it is to use the card, users often find themselves getting into deeper debt. Credit cards often have relatively high-interest rates as compared to alternatives and, with a low minimum payment requirement, can result in growing debt becoming crippling and detrimental to the individual.
How Do I Choose?
So, as is the case with all of the financial decisions that individuals make throughout their lives, the choice should be made on a case-by-case basis. Generally speaking, personal loans should be used to fulfill a one-time payment or to consolidate existing debt that an individual faces with likely higher interest rates. By consolidating these existing loans into a singular personal loan, the individual will recognize lower interest rates on their overall debt. Alternatively, credit cards should typically be used for smaller, recurring expenses or debts as it is a revolving credit line for the individual to tap into regularly.
Regardless, though, be sure to exhaust all options and research before making a snap judgment on a personal loan or a credit card.