It's a good rule of thumb to keep your personal and your business expenses separate as you begin getting your new startup off the ground.
One of the best ways to do this is by opening a business credit card. In this article, we look at what you need to know before choosing a business credit card for your startup.
It's worth noting that when you apply for a credit card for your startup, you will probably be asked about your personal credit information. They will also likely check your personal credit score. This is especially true if you are a sole proprietor.
Many times, the credit card issuer will hold you personally responsible for any purchases your business can't afford to pay back.
Conversely, you will also find credit companies that don't hold you personally responsible. Just ask the question and read the fine print.
First, it is often easier for a startup to open a credit card account than to secure a line of credit with a bank. This makes it infinitely easier for you to purchase what you need.
Second, a business credit card can help you establish your business credit history. Pay your account on time for a consistent period every month, and you just might be able to get that line of credit from a bank.
Third, business credit cards typically have higher credit limits than personal accounts. This again makes it easier to take care of your expenses.
Do note that business cards differ from personal cards in that they can change your rates at any time. So, you want to read all the terms and always pay on time.
If you or your employees expect to travel, consider a credit card that offers travel rewards points. Airline miles are always a good reward.
You can also look for a card with cash back offers as well.
Do read the terms and make sure you understand how much you have to spend to earn the rewards.
You'll also find that many business cards offer sign-up bonuses, 0% introductory APR, insurance coverage for car rentals, and discounts on travel, restaurants, hotels, and more.
Check out the rewards offerings diligently so you pick the best card for your needs.
Understand the terminology
As you're looking through the terms and fine print, you also want to take a look at and understand the fees.
The most important thing to understand is the APR on your account. APR is the annual percentage rate fee that you have to pay when you borrow money from the card issuer.
You are essentially borrowing money from them if you choose to carry a balance from month to month. Your interest compounds daily on the balance you carry if you don't pay it during your (usually) 25-day grace period.
Here are a few more terms to look out for:
With this information in hand, you are now ready to research the best card for your startup.
Read all the fine print, pick a card with the best rewards, and know all the fees you might be assessed.
Once you get your business credit card, be a responsible user so you can increase your credit rating. Managing your finances well will help your business grow and get extra funding in the future should you need it.
Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.
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