INFO KREDIT - Business credit cards are an easy way to make major purchases such as workplace furniture, office equipment, or manufacturing supplies. However, every business owner -- from sole-proprietors to CEOs -- should be aware that business credit cards operate differently from private credit card. Protection from liability, eligibility and rewards may differ from card to card , and not all consumer protections are applicable to businesses.
What is a business Credit Card?
Business credit cards are usually made for people who have the business. Owners of large companies or sole proprietors, and everyone between are eligible for a business credit card. The presence of employees or an office space is not necessary.
The majority of business credit cards are intended to be used to pay for business-related expenses, like purchasing office furniture, office equipment or for travel. Small businesses need to be cautious when using credit cards to purchase money that has not yet been earned or to deposit money into banks. A lot of business cards come with an ambiguity in their terms and conditions that restrict cardholders from using them to cover personal expenses.
A business card can be helpful for building business credit that lenders and other banks will be looking at in the event that a business's owner is in need of an enterprise loan. Some cards allow for credit for short-term loans that are useful for big purchases.
Who is eligible in Business credit cards?
The majority of business owners are eligible for a business-related credit card as they have excellent or excellent credit score and the intention to keep their business and personal expenses apart. The presence of a shopfront or large numbers of employees are not necessary however, a proof of income might be required for obtaining more favorable credit.
The business owners who qualify are:
- Sole proprietors
- Freelancers
- Small-scale business owners
- Business owners with large businesses
- Limited liability companies
- Corporations
This is what entrepreneurs must know prior to applying for a credit card for business.
1. Business Credit is Different from Personal Credit
A majority of adults Americans are credit-worthy and have good credit history. Applying for loans or making credit card purchases or making payments for utility bills could influence personal credit.
The business owners also have their own form of credit known as business credit. This allows potential creditors as well as credit card companies understand how accountable the business owner is when it comes to business financial obligations. Credit card issuers examine the credit history of both business and personal background to determine if a person is eligible for credit and what the amount for the new line credit would be. Issuers can report card transactions to credit bureaus that specialize in business which include Dun & Bradstreet, Experian Business Credit and Equifax Small Business.
Small-scale business owners and sole proprietors without a credit history should think about applying for secured business credit card that is reported to at least one of the credit bureaus for businesses. One option is that of Wells Fargo Business Secured Credit Card* card. So, a business owner can accumulate adequate credit before attempting to get the more popular card which offers more rewards.
2. A Business Doesn't Need To be Registered or Incorporated.
Sole proprietors, freelancers , and partnerships all can be eligible for a credit card for business. It is not necessary for a business to be registered or incorporated to be eligible for business credit. The possession of an Employer Identification Number (EIN) is not required, however it could be useful to apply for a more expensive business card.
Unregistered, independent, or unincorporated business owners must consider that they are personally responsible for all debts associated with the business card they use.
3. Business cards don't offer the same protections for liability as personal cards.
The CARD Act of 2009 provided personal credit card holders with advantageous protections, including zero liability for fraud and a grace period of 21 days to make payments and the requirement of notice of increased interest rates. Business cards are not subject to these safeguards. Certain business cards adhere to these rules, however it is important to be aware of the conditions and terms of a card before submitting an application.
In addition to protections for cardholders There are two kinds of debt liabilities that are applicable to business cards including joint and multiple liability.
Large corporations and companies that have corporate cards typically have commercial liability. This means that the company itself (not the person who holds it) is accountable for the debt if a creditor comes to the door.
Small business owners and owners may be liable for joint and multiple obligation on their credit card, which means both the business and cardholder are responsible for any obligations. The cardholder may be liable for a negative impact on their credit score, and could receive debts transferred to a collection agency. Making sure to pay the bill on the same day each month will ensure that the cardholder is not personally responsible for business costs (and charges).
4. Business Cards have Rewards as well. Some are tailored to business Costs
Similar to personal credit cards, certain business cards provide benefits to cardholdersfor example, the cashback, travel rewards and welcome bonus, to mention some examples. Certain business cards might offer financing on short-term purchases, which can be beneficial to a startup business looking to start.
In deciding what business credit card will be the best one, look at what kinds of rewards are provided. The low introductory APR period are a great way to build solid business credit without rack the interest rate on big purchases. Cash back or rewards points can be exchanged for corporate travel and office equipment and gift card for staff. Protections for purchases such as extended warranties and return protection can be useful to purchase new equipment and furniture.
Be aware that the purchase you make using rewards points or cash back might not be tax-deductible as an expense for business. Ask your tax advisor to find out more.
5. Businesses Card Application require more information in comparison to personal card applications
Credit card applications for business typically request similar personal information needed for a credit application such as name and date of birth as well as social security number and address. Applications for business credit cards will also need information related to the business, such as the name of the business, its industry and EIN (if required) and the amount of revenue.
The commercial card issuer is going to review of all the required information in the application, along with the applicant's personal and company credit history to determine if the company and its owner can be trusted as a borrower. Personal credit scores that are good to excellent credit is recommended to get the most lucrative business cards and the most lucrative rewards.
Before applying for any business card, go through the terms and conditions first. Making too many applications in a short time may lower the credit score of the applicant which makes it difficult to get a new card or loan.
6. Business cards typically have greater credit limits than Personal Cards.
Since businesses incur higher monthly expenses (and higher incomes) than normal consumers Business cards typically have higher credit limits. Sometimes, they are within the range of one extra zero. The issuer decides the amount of credit a card's limit will be after reviewing a business's credit background. Smaller business owners are more likely to have better credit scores than consumers, which could be a factor in the greater credit limit trends for small-sized firms. Cardholders with business cards can request more credits at any point by contacting the card issuer.
7. Employees Have the Right to Own Their Own Credit Cards
Most business card issuers permit cardholders to purchase employee credit card. Issuers might offer a few employee cards free of charge, whereas others may charge an amount per card.
Some cards permit the primary cardholder to manage the spending of employees with the help of spending limitations, sending alerts for card activity , and even limits on the card. Remember that business cards issued by employees may include joint and multiple liability, meaning that the business owner and the employee could be equally accountable for the debt on the card.
8. Business Cards could have different payment terms than Personal Cards.
The card issuers understand that businesses may not always have cash in hand to make big purchases. Certain cards provide extended payment options that permit customers to pay for big purchases under specific conditions. Cardholders can pay purchases over a long amount of time, without incurring interest or accumulating the full interest rate of the card.
The payment terms are different based on the issuer and the card. Business cardholders should contact the card issuer to discuss options for payment.
Bottom Line
The use of a business credit card can be compared to having an individual credit card however there are key differences that every business owner must know about. Credit cards for business are great to build credit for business in addition to earning rewards and reducing overhead when you make large purchases using special financing. Do not try to duplicate the benefits of a business credit card and a personal. Pick cards that provide you with a range of perks and rewards that will benefit your business. Just like any other credit card, you should not spend too much on business cards as you may be personally responsible for any outstanding debts.