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 Financial Decisions
Reverse mortgages are mortgages that are typically only available for individuals 62 and older who have a lot of equity in their homes. The most common type of reverse mortgage is a Home Equity Conversion Mortgage (HECM), which is backed by the Federal Housing Administration. With a typical mortgage, the borrower makes payments to the lender. With a reverse mortgage, the lender makes payments to the borrower.
It’s probably easier to explain this with an example.
Linda just turned 69 and has $100,000 left on her mortgage. Her home is probably worth somewhere in the realm of $450,000.
Due to life events (increased medical expenses, social security cuts, etc.), Linda is struggling to make her mortgage payments – but she desperately still wants to stay in her home since she can’t imagine living anywhere else.
So, Linda found a lender who would allow her to get a reverse mortgage on the house. Linda still has to pay homeowners insurance and property taxes, but now the lender makes payments to her.
When she passes away or sells the property, the loan balance becomes due. As long as she still has equity in the property, she will receive the difference between the after-commission sale price and the remaining mortgage balance after the reverse mortgage is paid off. This makes selling a house with a reverse mortgage very tricky and complicated.
Pros of Reverse Mortgages
Stay in Your Home (and Eliminate Monthly Mortgage Payments)
The biggest benefit for most people looking to obtain a reverse mortgage is the fact that they get to stay in their homes. When most people are struggling to make housing payments, eviction will come knocking on their door. Seniors with plenty of equity in their homes, however, have a way to comfortably stay in their homes while reversing their monthly payments.
Sure, you technically begin to lose equity as soon as you apply for a reverse mortgage, but it’s much better than foreclosure and eviction.
Turn Equity into Tax-Free Income
The income from a reverse mortgage is not technically “income,” according to tax laws. The IRS considers monthly reverse mortgage payments to be “loan proceeds.” This means that reverse mortgage payments are non-taxable income that doesn’t affect Medicare and Social Security benefits.
No Income or Credit Check Requirements
From the lender’s perspective, as long as there’s plenty of equity in the property, reverse mortgages are a safe investment. To borrow our example from above, Linda has $350,000 worth of equity in a $450,000 property. As long as Linda has enough income to take care of the property, the lender is in a position to hold the property and potentially benefit from appreciation over time. Accordingly, the lender doesn’t care what Linda’s credit or income looks like.
Cons of Reverse Mortgages
Restrictive Qualifications
To qualify for a reverse mortgage, as we listed above, borrowers must be at least 62 years and older and have an LTV ratio of more than 50% (in simpler terms, they own more than 50% of their homes). It also must be a primary residence, so vacation homes and secondary homes are not allowed. These are just the minimum requirements, too. Individual lenders might have stricter requirements.
Fees, Fees, Fees
Right off the bat, just like a traditional mortgage, you’ll have origination fees, closing costs and premiums to pay for – usually in the realm of 2-5% of the total loan balance – although this depends on the individual lender.
Additionally, if you don’t keep a close eye on the fees and interest that you’re being charged over time, these can start to add up and erode the hard-earned equity you’ve built. Reverse mortgages can have complicated requirements since they’re an unusual loan type. This leaves the lender open to charging all different types of fees. It’s important to fully understand the agreement before you’ve signed the dotted line.
Homeowners Still Need to Pay Homeowners Insurance and Taxes
If your taxes and homeowners insurance rates have increased, the reverse mortgage payments might be limited since you still need to make these payments.
Selling a House with a Reverse Mortgage is Complicated
Finally, selling a house with a reverse mortgage is very complicated. Technically, the original mortgage is still in place. If you’re planning on passing the property on to your loved ones after your death, this can be an additional headache.
Conclusion: Pros and Cons of Reverse Mortgages
For the right person, a reverse mortgage can be the perfect fit. It can allow an older homeowner with a lot of equity to stay in their property and improve their nontaxable income. However, there are lots of fees associated with reverse mortgages, and the terms can be very difficult to understand. Many homeowners buy homes so that they can leave a legacy to their children, but a reverse mortgage can reduce the impact of that legacy by shrinking their equity over time.