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.
Understanding the Process and Regulations of a Private Money Lender
A private money lender offers loans to businesses or individuals, and they typically finance real estate. Unlike banks and credit unions, private money lenders do not use credit as the primary determining factor for loan approval.
While the lender may have a minimum required credit score, they emphasize the loan terms, the value of the collateral and whether you have invested some of your own money in your project.
Types of Private Money Lenders
Like any other type of loan, you can choose the private money lender that best meets your needs. It's crucial to shop around for the best terms, even if you have credit challenges or have been denied by private money lenders in the past.
Private lending companies like Lightstream, Best Egg, or Lending Point are online lenders with different loan requirements than a bank or credit union. You can also get a private money loan from individual private lenders. These accredited investors may be more concerned with the loan terms and the investment quality than the borrower's credit history.
Borrowers can also reach out to professional contacts and family and friends to get a private money loan. Their relationship with you and first-hand knowledge of your situation may help you get the loan you need if you cannot get conventional financing.
Pros and Cons of Private Money Lending
Before choosing a private money loan, it is crucial to understand how this type of financing works.
High APR and Fees
A private money loan can be expensive. Expect to pay interest rates that are far above today's low APRs. Look through the fine print carefully. Many hard money loans come with origination fees of 1% to 5% of the total loan amount and annual fees of up to 13% of the total loan amount. Some lenders also require you to pay a commitment fee to reserve your loan funds until closing. Be sure to ask about pre-payment penalties or interest lockouts that guarantee the lender a certain amount of interest, even if you pay off the loan early.
Short-Term Loan
The loan term is usually just one to five years. Most borrowers require only a short-term loan to help them with a real estate investment, so a higher interest rate combined with a smaller term works well.
Low Loan-to-Value Ratio
Hard money loan approval depends on the value of the collateral. A lender may finance the investment up to its market value, but they usually prefer a 50% to 75% loan-to-value ratio. With a low loan-to-value ratio, the lender can justify the increased risk that you will default on the loan. They can recoup their money by selling the property if you do not make payments.
Quick Approval and Funding
While it can take months to get approved for a traditional mortgage or business loan, the turnaround time on a private money loan could be as short as five days.
Relaxed Credit Requirements
Your private money lender may be more concerned with the value of the property you use as collateral than your credit history. So, if you cannot qualify for a mortgage or business loan, this type of loan can provide the cash you need to fund your real estate project.
How To Get a Hard Money or Private Money Loan
If you need a private money loan for a real estate investment, it is smart to reach out to local real estate developers to get the names of investors who may be interested in your project.
For private money loans for debt consolidation or other personal reasons, you may have more luck finding a hard money loan from an online lender. The lender may require a detailed real estate appraisal or valuation for the loan's collateral. While their final decision probably will not hinge on your creditworthiness, some lenders have a minimum credit score requirement.
The underwriting process varies from one lender to the next. If you choose an online lender, expect to provide details about your financial situation like debts, income, and assets. If you need a fast loan to rehab a piece of real estate, the lender may require a purchase contract for the property and a written scope of work, including costs and timing with your completed loan application.
For a new construction loan, your lender may ask you to work with your contractor to set up a draw schedule. The lender may not release all the funds at once. The draw schedule gives an estimate of how much money you will need throughout the project.
Who’s Most Suitable for a Private Loan?
A private money loan is not right for everyone with bad credit. There are other ways to borrow money for real estate. If you have credit problems and plan to live in the home, consider an FHA loan. If your property is in disrepair, an FHA 203k loan may work, as well.
Private money loans work best for real estate experts with a project that could potentially make enough money to pay off the loan plus the fees in a short amount of time.