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.
Know What You're Signing up For
American students have assumed massive amounts of loan debt. Student loan borrowers owe about $1.53 trillion, with an average debt per person exceeding $37,000. The burden student loans place on the current generation of students is staggering.
We’ll give you the facts you need to understand your options to make student loan repayment easier, in particular looking at subsidized vs unsubsidized student loans. It will also be useful to take a look at a loan calculator when considering the different types of loans available as well as repayment options.
The Different Types of Student Debt
The federal government provides about 93% of all student loans; the remainder is funded by private lenders. The two main types of federal loans are subsidized and unsubsidized.
Subsidized Student Loans
The federal government offers direct subsidized student loans to undergraduates with financial need. These loans are characterized by the following:
- Your school will determine how much you can borrow based upon your financial need.
- The U.S. Department of Education will pay interest on your loan during these specific periods:
- You are attending school at least half-time.
- You are in the grace period after leaving school. The grace period is the six months after graduating, leaving school or dropping below half-time status. Once the grace period ends, you must begin repayments.
- You are in a period of deferment, in which your loan payments are postponed for various reasons.
- The aggregate limit on subsidized loans for an undergraduate is $23,000. The undergraduate can take a mix of subsidized and unsubsidized loans of up to $31,000 (for dependent students) or $57,500 (for independent students).
Unsubsidized Student Loans
An unsubsidized loan is one in which you must begin paying interest on the loan right away. Unsubsidized loans are available from the federal government and private lenders. The federal direct unsubsidized loan program features the following:
- Loans are available to undergraduate and graduate students who do not have to demonstrate financial need.
- Your school determines your loan size by evaluating the cost of attendance and any other financial aid you obtain.
You must pay interest on the loan during all periods after accepting the loan. - However, if you can’t pay interest while in school at least half-time, in a grace period or in a deferment/forbearance period, the interest will accrue and be added to your loan principal amount.
- The aggregate limit on undergraduate unsubsidized loans is $31,000 (for dependent students) or $57,500 (for independent students).
- The aggregate limit on student loans for graduate or professional students is $138,500, of which no more than $65,000 can consist of subsidized undergraduate loans. However, graduate and professional students who are enrolled in certain health programs may receive a higher aggregate limit on unsubsidized loans.
Other Federal Loan Programs
In addition to the Federal Direct Subsidized and Direct Unsubsidized Loan Programs, the following federal student loans are available:
- Direct PLUS Loans for parents, graduates and professional-degree students. These loans have no grace period.
- Federal Perkins Loan for undergraduate, graduates and professional-degree students. These loans are administered by the college you attend. The grace period is nine months.
Private Loans
Private student loans from banks and other sources are not guaranteed by the government, and are more expensive than federal loans. For various reasons, about 7% of student loan money is lent by private companies, including Social Financial (SoFi), Citizens Bank, Wells Fargo and many others.
Naturally, the repayment terms vary from one lender to the next. Many private loans offer six- to 12-month grace periods, a feature not available on Federal PLUS Loans.
Private student loans may feature fixed or variable rates, or a mixture of the two.
The two types of private student loans are:
- Direct-to-consumer: The student interacts directly with the lender and must provide verification of enrollment. Proceeds are distributed to the borrower.
- School channel: The school certifies the student’s enrollment and receives the proceeds from the lender. These loans are usually cheaper than direct-to-consumer loans, but take longer to arrange.
Deferment/Forbearance
Federal student loans may offer deferment and/or forbearance, features seldom found in private student loans. Therefore, this section addresses only federal student loans.
Deferment
A deferment is a temporary delay in the repayment of loan principal and interest, usually because of an inability to repay due to unemployment or other circumstances. During deferment, the government may pay the interest on direct subsidized loans and Perkins loans, but not on unsubsidized and PLUS loans, where instead the interest accrues. Accrued interest may be added to the principal amount of your loan once the deferment period ends.
Check the Federal Student Aid site for more information about qualifying for a deferment.
Forbearance
Forbearance allows you to stop making payments or reduce your monthly payments for up to 12 months when you don’t qualify for a deferment. Interest accrues during periods of forbearance, although you can choose to make the interest payments during the period in order to avoid accrual.
There are two types of forbearance:
- Discretionary: The decision to grant forbearance rests with your lender. It is usually requested because of financial hardship or illness.
- Mandatory: You may qualify for forbearance if you meet any of the eligibility requirements listed on the Federal Student Aid website.
Income-Driven Repayment
The federal government offers four income-based student loan repayment plans. These are available for Direct Subsidized and Unsubsidized loans, as well as Direct PLUS loans to graduate and professional students (but not parents).
Under these programs, your income and family size are used to determine how much you shell out each month in student loan repayments.
The four plans are:
- Pay as You Earn Repayment Plan (PAYE Plan)
- Revised Pay as You Earn Repayment Plan (REPAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
See the Federal Student Aid website for all the details regarding income-based repayment programs.
Conclusion
Subsidized and unsubsidized federal loans are quite similar. The basic differences are:
- Amounts available: Unsubsidized loans have higher loan limits.
- Financial need: You do not have to show financial need to get an unsubsidized loan.
- Undergraduates only: Federal subsidized loans are available only to undergraduate students.
- Interest payments: The federal government will pay your interest on a subsidized loan during specific periods. You must pay interest on an unsubsidized loan right away, but if you can’t, the interest accrues and is added to your loan principal.
Private student loans are also available, and all but a few offer any subsidies. These typically have higher interest rates and are based upon your (and your cosigner’s) credit score.