By Marco Carbajo
Marco Carbajo is a business credit specialist and owner of the Business Credit Insiders Circle, a step-by-step business credit building system and funding engine for entrepreneurs and small business owners.
Whether you are at the early stages of launching a business or own an existing business, having access to a business credit card is crucial.
A business credit card should always be the card you use when making credit card purchases for your business. Unfortunately the vast majority of small business owners continue to use personal credit cards for business without realizing the dangers associated with this practice.
Did you know co-mingling funds can potentially jeopardize the protection of the corporate veil? Corporate veil piercing is the single greatest litigated issue in corporate law today. For true personal and business separation you need to get a business credit card exclusively for your company’s use.
However, the majority of business credit cards being offered in the marketplace are still closely tied to a business owner’s personal credit. Not only do banks review personal credit history during the credit granting process; the payment history and revolving business credit card debts report to the business owner’s personal credit reports as well.
This ‘dividing line’ between personal and business credit cards must be established at the credit reporting level in order to legitimize true personal and business credit separation. The best business credit cards should only report to the business credit agencies. This not only enables a company to establish its own unique creditworthiness but also protects the personal credit ratings of the business owner.
Several additional benefits associated with a business credit card include:
Easily track and manage business expenses – with a non-consumer reporting business credit card you are able to completely separate your personal and business credit card purchases.
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This is especially convenient for bookkeeping purposes during tax time.
Fast access to cash – a revolving line of credit offers the flexibility of having cash on demand for any business need. Since the credit is revolving the amount of available credit decreases and increase as funds are borrowed and then paid back. There is no need
to take out a business loan ; you simply use your business credit card when your company needs it.
Higher credit limits – the size of credit limits issued with business credit cards are much larger compared to personal credit cards. This allows a business owner to make sizeable purchases on credit without the constant concern of exceeding the card’s credit limits.
Perks and Rewards – cash back rewards, concierge services, bonus miles, discounts on hotels and car rentals are just a few of the many benefits that go along with business credit cards.
Protective Measures – the ability to preset spending limits on employee cards is a strong advantage business credit cards have over personal credit cards. This feature helps simplify expense tracking and travel reimbursement for employees.
How do you get a business credit card?’
The first thing you should do prior to applying for a business credit card is to evaluate your personal credit reports and scores. Although business creditors require your Federal Tax ID and D-U-N-S Number on credit applications your personal FICO® scores will still be used in the credit granting process.
Secondly, conduct a business credit analysis so you can determine where your business stands in regards to its own creditworthiness. Does your business have a Paydex Score? Does it have trade references? Is it listed with Corporate Experian and Equifax Small Business?
Thirdly, once you have determined both your personal and business creditworthiness, the next step is to identify what type of card your company needs. If you plan to use the card for business travel on a regular basis than you may want to select a card that offers travel rewards and incentives. If protecting your personal credit is on the top of your list than consider applying for a non-consumer reporting business credit card .
Once you obtain a business credit card. manage the card responsibly, just as you would with your personal credit card. Keep the debt to credit ratios at a minimum and avoid accumulating large revolving debt. Take the time to research and compare cards so you can take advantage of all the benefits a business credit card has to offer.