If you follow the steps below, you’ll be able to understand why you’ll need to do this and the best way to improve the chances of being accepted for a business credit card.
Can you get a credit card for small businesses as sole owners?
Most sole proprietors applying for a credit card for business will likely be approved, but you’ll need to be vigilant about how you use the card. Credit cards can, when not carefully handled, result in the business being financially strained.
Following the Small Business Administration, from the law perspective, there is no distinction from the sole proprietorship you own and run. You are responsible for any obligations your company has incurred – i.e. you are liable for your debts.
“A credit card is a tool that can be used correctly or incorrectly,” said LJ Suzuki, CFO of CFOshare. You should consider getting an enterprise credit card as it’s an excellent tool to include within your arsenal. However, it’s your responsibility to utilize this tool with care.”
What eligibility criteria are for sole proprietors to get an entrepreneur’s card with a smaller size?
If you are the sole proprietor of a sole proprietorship, your capacity to get the corporate credit card (and the rates of interest you’ll have to be charged if you have an outstanding amount) is directly tied to your credit score.
Your credit can affect the credit limit that was initially set by the credit card as well as the rate of interest.
“The factors impacting an applicant’s eligibility for card membership can vary based on the card product,” an American Express spokesperson told business.com. “No two small businesses are alike, which is why there are a variety of business credit cards and products to help entrepreneurs in any industry and at any stage of their business journey.”
Four steps to improve your odds of being accepted for a small business credit card
A lot of the same guidelines which govern the approval process for personal credit cards can be applied to getting a business credit card.
“Getting a business credit card is just as easy or difficult as getting a personal credit card,” Suzuki said. Suzuki. “Generally, it’s among the simplest kinds of credit to obtain. You can apply online for a kind of card with different advantages. Be prepared that they will ask for you to provide your Social Security number and run checks on your credit score personally.”
It is also helpful to remember the criteria credit card companies are looking for when they process a prospective applicant.
Take note of where you’d like to apply.
There are many business credit card companies to pick from. When deciding the right choice for sole proprietorships, the cards are supported by banks, financial institutions or credit unions that tend to be more likely to approve companies they already have established relationships with.
For a start, consider the banks you are a customer of, whether personally or professionally and see whether they provide a business credit card. If you contact an institution that already knows the creditworthiness of your business, you could be more likely to be approved.
Verify your score on credit.
Being a sole proprietor, your financial situation will be scrutinized more than business owners with other business structures. Your credit score will be observed by the card issuers.
Before you submit your application, verify your score on credit. According to Experian, a good credit score is around the 700s. But there is some room for flexibility. For instance, FICO considers scores starting at 670 to be considered good. However, VantageScore takes anything over 670 to be a satisfactory score.
Be sure to have all the relevant information for your application on hand.
You’ll be asked for your Social Security number, recent accounts that reflect monthly expenses and revenue, as well as the tax ID number of your company (TIN).
While many small companies will require employers’ identification numbers (EIN) for their company’s TIN when applying for a credit card for business, however, being a sole proprietor will mean that you’ll be using your Social Security number instead. (That is the case once you hire employees, as you’ll be required to possess an EIN given to your company from IRS. IRS.)
The card issuer may also need to know the length of time you’ve been operating for. Financial institutions and banks are looking to reduce their risk. Card issuers are more likely to collaborate with a sole established proprietorship rather than one that is brand new.
Choose what you will provide as an assurance.
Because credit card issuers need to limit their risk when it comes to the people they lend to, Sole proprietorships offering personal guarantees or collateral stand a greater likelihood of getting approved. Collateral could be business equipment, such as real estate or equipment, and assurances as down payments.
Credit cards are beneficial for sole owners.
Using a credit card for business responsibly will improve your credit score and benefit from other benefits.
“Credit cards are an excellent form of debt to float temporary cash shortfalls or finance large online purchases such as furniture or software,” Suzuki said. Suzuki. “Credit cards aren’t a great type of long-term financing. It is better to apply for an operating capital line of credit or a term loan when you require credit for more than a couple of months.”
These are only a few advantages a business credit card could provide sole ownership.
Build credit
The better your credit score, the more likely you will be granted a business credit card. You’ll also be eligible for better interest rates and greater credit limits.
Furthermore, by using a company credit card and then paying it back every month, you show the financial institutions that you’re reliable and trustworthy. This means banks will likely extend different types of loans for you later on since you’ve established a track record of paying the amount punctually and in full.
Earn rewards
To encourage you to apply to specific business credit cards, Card issuers provide great incentives such as sign-on bonuses and travel miles as well as cash back you earn when using the card. Because you can make a purchase worth thousands of dollars using a credit card for business, and these rewards could add up fast.
“Rewards designed for business owners can go a long way,” an American Express spokesperson said. “They can be reinvested back into the business by spending them on business purchases, such as on telco bills, office supplies, and even marketing, as well as help to fund business travel, or on ways to recognize employees.”
Credit card options that are popular
Although it’s difficult to provide every credit card option that sole proprietors can use below, we’ve offered the basics for your research.
The benefits of a card differ by the issuer, so take into account the rewards, the interest rate, and the charges. Here are the most popular credit card companies:
- Visa
- Mastercard
- Discover
- American Express
- Capital One
- Citi
