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A business credit card is an effective tool for managing the financial challenges of starting a business. Business credit cards offer startups flexibility, the ability to manage cash flow, and opportunities to build business credit, all while separating personal and business expenses.
Unlike personal credit cards, business cards are tailored to the needs of entrepreneurs, thereby providing rewards on business-related purchases, larger credit limits, and perks designed to help companies grow.
However, it’s not easy for new business owners to obtain a business credit card. With questions about eligibility, interest rates, and how to make the most of card rewards, many entrepreneurs don’t know where to start.
This guide breaks down everything you need to know about getting a business credit card for your startup.
Why Do Startups Need a Business Credit Card?
Apart from providing a convenient way to make purchases, business credit cards offer several benefits tailored to the needs of startups.
From improving cash flow and simplifying expense tracking to building business credit and earning valuable rewards, a business credit card can be a vital asset in the early stages of growth.
Here's why every startup should consider getting one.
Streamlining Cash Flow
A business credit card can provide an immediate and flexible line of credit that helps cover essential expenses during the early stages, such as purchasing inventory, paying vendors, or covering operational costs.
Instead of waiting for revenue to arrive, a business credit card allows startups to meet financial obligations and continue day-to-day operations without disruption. By borrowing responsibly and paying off balances regularly, startups can avoid cash flow crunches and ensure smoother operations.
Tracking Business Expenses
For startups, tracking expenses is vital for budgeting, forecasting, and tax purposes. Business credit cards make this process easier by offering detailed monthly statements that categorize purchases.
This not only simplifies bookkeeping but also tracks where the company’s money is going. During tax season, these statements provide a clear and organized record of deductible expenses, reducing the risk of errors or missing claims.
Building Business Credit
Establishing a solid business credit profile early on is important for startups that want to grow and secure future financing. A business credit card is one of the best ways to start building business credit, as long as payments are made on time and balances are managed effectively.
Good business credit can open doors to higher credit limits, lower interest rates, and more favorable loan terms. It also helps startups gain credibility with potential partners, suppliers, and investors who may check the business’s credit score as part of their decision-making process.
Access to Rewards and Benefits
Many business credit cards come with rewards programs that can benefit startups. These rewards can include cashback on everyday purchases, travel points, and discounts on business services.
For instance, startups that frequently travel can use credit card miles to reduce travel expenses, while cashback cards can help cut costs on office supplies, utilities, and more.
In addition, business credit cards often come with perks like purchase protection, extended warranties, and travel insurance which offer extra value beyond basic financial transactions.
Tips for Getting a Business Credit Card for a Startup
As stated earlier, it can be challenging for new businesses without an established credit history to get a business credit card. Here are tips to improve your chances of getting approved and selecting the right card for your business needs:
- Establish your business entity
- Get an Employer Identification Number
- Check your credit score
- Start with a secured business credit card
- Compare interest rates and rewards
#1 Establish Your Business Entity
Lenders are more likely to approve business credit card applications for companies that are legally registered. A formal business structure, such as an LLC (Limited Liability Company) or a corporation, separates your personal and business liabilities.
This gives lenders more confidence that they are dealing with a legitimate enterprise, which can increase your chances of getting approved for a business credit card. It also helps you build a unique business credit profile, which is important for accessing higher credit limits and better loan terms in the future.
Types of Business Entities
The most common business structures for startups include:
- Sole Proprietorship: The simplest structure, but doesn’t offer liability protection. While you can get a business credit card as a sole proprietor, you’ll likely have to rely on your personal credit history.
- Limited Liability Company (LLC): Offers personal liability protection while maintaining a simple structure. LLCs are often favored by startups because they combine flexibility with legal protections.
- Corporation (S-Corp or C-Corp): A more formal structure that offers the most legal protections and can help you scale. Corporations are ideal if you plan on seeking significant outside investment or expanding rapidly.
How to Establish Your Business Entity
- Choose a name that reflects your business and check its availability in your state.
- Depending on your chosen structure, file certain forms (such as Articles of Incorporation for a corporation) with your state’s business registration office.
- After establishing your entity, apply for an EIN from the IRS. This number acts like a Social Security number for your business and is necessary for opening a business bank account and applying for business credit cards.
- Some industries require certain licenses or permits to operate. Obtain all necessary documentation to comply with local and federal laws.
#2 Get an Employer Identification Number (EIN)
The Employer Identification Number (EIN) is a unique nine-digit number (assigned by the IRS) to identify your business for tax purposes. But why do you need an EIN?
- Most business credit card issuers require an EIN as part of the application process. It signifies that your business is a separate legal entity, which helps build credibility with lenders.
- The EIN is used by the IRS to track your business’s tax filings. Irrespective of your business structure, an EIN is a professional way to handle your business tax obligations.
- Having an EIN helps build your business credit profile. You establish a strong credit history for your startup by separating your personal and business finances.
- If your startup is incorporated as an LLC, partnership, or corporation, having an EIN is mandatory for tax purposes and opening business bank accounts.
How to Apply for an EIN
- You can easily apply for an EIN through the IRS website. The process is free and takes only a few minutes. Once submitted, you will receive your EIN immediately.
- If you prefer, you can also apply by mailing or faxing Form SS-4 to the IRS. However, these methods take longer—about four weeks for mail and four business days for fax.
- Apply for an EIN as soon as you’ve established your business entity. This way, you’ll be ready to apply for credit cards, open a business bank account, and take care of other administrative tasks without delays.
#3 Check Your Personal Credit Score
Your credit score is crucial when applying for a business credit card. Since your business may not yet have a credit history, lenders will often assess your personal creditworthiness to determine whether you're eligible for a card.
Here’s how to approach this step:
Understand the Importance of Personal Credit
As a startup founder, your personal financial habits act as a proxy for your business. Lenders view your credit score as a reflection of how responsibly you manage money.
A higher credit score indicates lower risk, which can make lenders more comfortable extending credit to your business.
- Good credit (a score of 670 or above) increases your chances of approval and may qualify you for cards with better terms, such as lower interest rates or higher credit limits.
- Poor credit (below 580) may limit your options or result in higher fees and interest rates. In some cases, you may only qualify for secured business credit cards, which require collateral.
Check Your Credit Report
Before applying for a business credit card, review your personal credit report to ensure there are no errors or outstanding issues. You can access your credit report from major credit bureaus like Experian, Equifax, or TransUnion.
Look for the following:
- Errors: Incorrect entries, outdated information, or fraudulent accounts can hurt your score. Dispute any inaccuracies with the credit bureau.
- Credit Utilization: Lenders prefer applicants who use less than 30% of their available credit. High credit utilization signals financial strain and can lower your chances of approval.
- Payment History: Ensure you have a history of on-time payments, as this is a significant factor in your credit score. Late or missed payments will raise red flags for lenders.
Improve Your Credit Score if Necessary
If your credit score is not where it needs to be, improve it before applying for a business credit card. Here’s how to improve your credit score:
- Reduce existing debt, especially credit card balances, to improve your credit utilization ratio.
- Set up automatic payments to ensure all bills are paid on time. This will positively impact your payment history.
- Don’t apply for multiple credit cards or loans within a short period, as hard inquiries can temporarily lower your score.
#4 Start with a Secured Business Credit Card
If your startup is new and lacks a credit history, it can be challenging to qualify for a traditional business credit card. One effective way to build credit for your business is by starting with a secured business credit card.
A secured business credit card requires you to make a cash deposit as collateral. The deposit determines your credit limit, meaning if you deposit $1,000, your credit limit will be $1,000. This deposit reduces the risk for the card issuer, making it easier for startups with little or no credit history to qualify.
Although it’s secured, the card works like any other credit card. You can make purchases, earn rewards (in some cases), and improve your credit profile by making timely payments.
Benefits of Starting with a Secured Card
- A secured card helps your startup build a business credit history, which is important for future borrowing. Each on-time payment is reported to credit bureaus, demonstrating your ability to manage credit responsibly.
- Since the card issuer holds your deposit as collateral, they’re more likely to approve your application. This is helpful if your business is new or your personal credit score is still improving.
- Many secured credit cards allow you to transition to an unsecured card after proving your creditworthiness. Once your business establishes a positive credit history, you may qualify for a higher credit limit and more favorable terms without needing a deposit.
#5 Compare Interest Rates and Rewards
When selecting a business credit card for your startup, one of the most important steps is comparing interest rates and rewards programs. Here’s how to execute this process:
Understand Interest Rates
Interest rates, often referred to as the Annual Percentage Rate (APR), can impact your overall costs if you carry a balance. Here’s what to consider:
- Fixed vs. Variable Rates: Fixed rates remain the same throughout the life of the card, while variable rates can fluctuate based on market conditions. If you plan to carry a balance, a fixed rate may provide more predictability in your payments.
- Introductory Offers: Some credit cards come with promotional APRs for an initial period (e.g., 0% APR for the first 12 months). While this can be beneficial for managing expenses, check what the rate will revert to afterward.
- Compare Different Cards: Look at different cards and compare their interest rates. This will help you find the best deal, especially if your startup may need to carry a balance during its early months.
Evaluate Rewards Programs
Rewards can add value to a business credit card by turning everyday purchases into future savings. Here’s how to evaluate these programs:
Types of Rewards
Business credit cards offer rewards in several forms:
- Cashback: Earn a percentage of your spending back as cash. This is often straightforward and provides immediate benefits.
- Points: Accumulate points that can be redeemed for travel, merchandise, or services. These can be especially valuable for startups that travel frequently or require office supplies.
- Miles: Ideal for businesses that travel regularly, earning miles can offset the cost of flights and hotel stays.
Bonus Categories
Some cards offer enhanced rewards in specific categories, such as office supplies, advertising, or travel. If your startup spends heavily in any of these areas, a card that offers higher rewards in those categories can maximize your benefits.
Annual Fees vs. Rewards
Consider whether the rewards you earn outweigh any annual fees associated with the card. A card with a high annual fee may only be worth it if you can leverage its rewards effectively.
Analyze Spending Patterns
To make the right decision, take a close look at your startup's spending habits:
- Review your business expenses over the past few months to identify where you spend the most. This insight will guide you in selecting a card that maximizes your rewards based on your spending categories.
- Consider upcoming expenses as your business grows. If you anticipate higher travel costs, a card with travel rewards may be beneficial, while a card with high cashback for office supplies may be better if you're purchasing equipment.
Best Small Business Credit Cards for Startups
The best small business credit cards not only help streamline cash flow but also offer valuable perks such as cashback, travel rewards, and expense tracking. Here are some of the top options available:
Capital One Spark Miles Select for Business
The Capital One Spark Miles Select for Business offers a straightforward rewards structure with no annual fee. This card allows you to earn unlimited 1.5X miles on every purchase, making it ideal for businesses looking to accumulate travel rewards without the hassle of rotating bonus categories.
Miles can be redeemed for travel expenses or transferred to various airline and hotel partners for maximum value. It includes benefits like extended warranties and rental car collision coverage, and there are no foreign transaction fees.
However, startups seeking an introductory APR may want to explore other options, as this card does not offer that feature.
Ink Business Cash Credit Card
The Ink Business Cash® Credit Card stands out for its lucrative cashback rewards on common business expenses. With no annual fee, you can earn 5% cash back on the first $25,000 spent at office supply stores and on internet, cable, and phone services annually.
In addition, it provides 2% cash back on gas and restaurant purchases, making it a perfect fit for businesses that frequently spend in these categories. The card also comes with employee cards at no extra cost and various purchase protections.
However, be mindful of the cap on elevated earn rates, as it applies only to the first $25,000 in combined purchases each year.
Ink Business Unlimited Credit Card
The Ink Business Unlimited® Credit Card is an excellent choice for businesses looking for a simple rewards structure. It offers unlimited 1.5% cash back on all purchases without requiring you to track bonus categories.
This card also provides employee cards at no additional charge, primary auto rental collision damage waiver, and purchase protection. While it has no annual fee, be cautious of the foreign transaction fee if you plan to use it abroad.
The card's 0% introductory APR for the first 12 months on purchases adds additional value for new startups.
State Farm Business Cash Rewards Visa Signature Card
The State Farm Business Cash Rewards Visa Signature® Card is ideal for businesses that spend heavily in its bonus categories. You can earn 3% cash back on insurance premium payments (up to $4,000 annually) and also on purchases at gas stations, office supply stores, and dining.
There's no annual fee, and the card features a $100 annual software subscription credit. However, the extra cashback on insurance payments is limited to the first year and requires applying through a State Farm agent. This card is a solid option for startups that want to maximize cash back on everyday expenses.
Ink Business Preferred® Credit Card
The Ink Business Preferred® Credit Card offers valuable rewards and robust travel protections. With a generous welcome bonus of 90,000 points after spending $8,000 in the first three months, you can redeem those points for $900 cash back or $1,125 toward travel.
This card earns 3 points per $1 on the first $150,000 spent in select business categories, plus several travel insurances and no foreign transaction fees. While it carries a relatively low annual fee, it might not suit every business, especially if your expenses don’t align with its bonus categories.
Nonetheless, it's a top choice for businesses that want to benefit from the value of Chase Ultimate Rewards.
Can You Get a Credit Card for a New Business?
Yes, you can get a credit card for a new business. However, the process and requirements depend on your business's age, credit history (often the owner's personal credit history), and financial stability. Here are points to consider:
Personal Credit History
Most lenders will look at your personal credit history as a major factor in determining your eligibility for a business credit card. A strong personal credit score can increase your chances of approval.
Business Credit History
While a business credit history can be helpful, it may not be as important for new businesses. If you've been in business for a while, you might have established a business credit profile through factors like paying bills on time and obtaining business loans.
Business Plan and Financial Information
Lenders will likely ask for your business plan, including details about your industry, target market, and financial projections. They may also require financial information such as income statements and tax returns.
Secured Business Credit Cards
If you have a limited or poor credit history, you might consider a secured business credit card. These cards require a security deposit, which can help mitigate the lender's risk.
Wrapping Up
Getting a business credit card can provide startups with financial flexibility and build a robust credit profile. However, startups should be proactive in enhancing their chances of approval when applying for a business credit card.
While challenges like high interest rates and low initial credit limits may arise, being strategic about your applications and managing your credit wisely can lead to long-term financial success.
FAQs
Can you get a business credit card at startup?
You can get a business credit card at startup, but it depends on your personal credit history and the quality of your business plan. Lenders may require a security deposit for new businesses with limited credit.
How long do I need to be in business to get a credit card?
The time you need to be in business to get a credit card varies. It depends on your credit history, the type of credit card, and the lender's policies. Newer businesses might find it more challenging, but building a strong personal credit history, having a solid business plan, and considering secured options can improve your chances.
How much money can you get on a business credit card?
In the United States, the typical business credit card limit is around $56,100; however, your specific limit may vary widely from this average. This variation is due to several factors that contribute to determining the credit limit for which your business is eligible.
