If you work for yourself in a small business you may wonder if you should apply for small business credit cards. If you have several personal credit cards with credit lines available it may seem like too much trouble to apply for credit just for your small business.
Failing to establish credit in the name of your business could be a crucial mistake that could limit your ability to grow your business. It also would have the potential of damaging your personal financial health.
Why You Need a Small Business Credit Card
Even if your business is a service provider that you operate out of your home it is wise to establish a line of credit for your business.
In time, your business may grow faster and larger than you expect. If you need to buy a substantial amount of supplies or apply to rent warehouse or office space you will need credit established in the business name.
Federal, state and local tax laws carry a heavy load of paperwork to document purchases and sales for any business. Using a small business credit card allows you to categorize purchases and track payments to suppliers.
You may also find some of the big credit card banks offer excellent rewards programs for business credit card holders. Discounts on office supplies, cash back on gasoline purchases and special deals on rental cars, airline flights and hotel rooms are just a few of the savings offered to lure small business accounts.
Perhaps the best reason to apply for a small business credit card is to begin to separate your personal finances from the financial health of your business.
This is important as starting a small business is a risky venture today. Many of the risks that might affect your business are outside your control. Customers who don’t pay on time can cause a cash flow problem that can affect your ability to pay your own creditors. A customer who falls may seek liability damages or an act of nature can put you out of business for weeks or even months.
Business insurance will cover some of the risk small businesses face but any damage that exceeds the insurance will be a liability for the business. If you mingle personal and business in the same bank and credit card accounts, your personal finances can be considered part of the business.
Securing a Small Business Account
If your business is new it may be difficult to obtain a credit card in the business name. Lender reluctance may be overcome if you can show a healthy financial basis of the business but that is not always possible.
Many small businesses today are started on a shoestring and with high hopes. Even the best business idea can be crushed by a bad location or a defective product. The most common cause of small business failure is the inability to provide sufficient cash flow to keep the business running. Clearly, credit cards with sufficient spending limits can help you through those times when the cash flow leaves you short on money to pay suppliers.
If you are unable to obtain credit in the business name, you may be able to obtain a small business credit card by guaranteeing the card with your personal credit. Many new small businesses take this route to establish credit in the name of the business.
There is some risk involved but done properly, the risk is limited. After some time of using your business credit card and paying it off in a timely way, your lender will be amenable to transferring the responsible for the business account to the business itself. This will remove you as a guarantor of the debt and protect your personal finances from problems related to running the business.
Establishing credit in the name of your business has benefits far beyond spending power and protection of personal assets. Renting warehouse or office space, buying business interruption insurance and negotiating prices and payment terms with suppliers are all issues where the credit rating is a crucial factor.
The first small business credit card you acquire will be the first step in establishing a trustworthy credit reputation for your business in years to come.
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