How do you qualify for a lower business credit card rate?
Credit card interest rates for businesses are indeed lower than consumer credit card rates. The overall average rate for standard business credit cards is currently at 14.74%. Business credit cards that feature rewards programs average 15.53%.
These rates are markedly lower than consumer credit cards which are currently at an average of 16.87% overall. Rewards cardholders are paying an average of 17.66% on their outstanding balances while non-rewards consumer credit cards carry an average rate of 15.03%.
Qualifying by the Numbers
Qualifying for a business credit card involves much the same process as qualifying for an individual card. Business owners apply for credit cards as individuals and undergo the same scrutiny. To be eligible for the best business credit card rates, business owners should have excellent credit.
Using the FICO credit score guidelines, a score of 740 and above indicates excellent credit. Average scores of 700 to 720 are very good and averages in the 680 to 700 range are considered good FICO scores.
Credit scores of 640 and above are generally considered to be okay and depending on the lender, may be acceptable for a good business credit card rate.
Credit reports should be free of any recent late payments or other credit blemishes such as judgments or liens. Qualifying guidelines also include a review of how much outstanding credit a business applicant might have, as well as a review of the number and kinds of recent credit inquiries found on credit bureau reports.
In addition, proof is required to show that business applicants have sufficient income to repay their outstanding credit obligations. Business owners may be required to submit copies of recent tax returns and/or financial statements to their bank, in order to complete the qualifying process.
Reasons to Apply for a Business Credit Card
According to the U.S. Small Business Administration. more than 65% of small businesses regularly use credit cards, but fewer than half have credit cards in their business names.
There are a number of solid reasons for a business owner to apply for a business or company credit card. First, IRS tax regulations require that business owners keep separate records of business expenses. Records must contain the details of each business expense and be divided into appropriate tax categories.
Most business credit cards do the record keeping for you and
provide permanent records of all your business expenditures. Business credit cards also help small corporations separate personal transactions from business transactions, preventing the comingling of funds and sustaining the corporate shield of protection.
Lastly, applying for a business credit card helps to establish the creditworthiness of the company as well as the individual(s) applying for the card. You not only build a credit history for the business, but also avoid having business debts appear on your personal credit report.
Pros and Cons of Business Credit Cards
The financial website Investopedia. lists a number of things to consider before applying for a business credit card.
There are several financing alternatives open for small businesses. These include traditional loans and lines of credit. Loans and credit lines take time to arrange and often require some form of collateral or security. On the plus side, these alternatives feature lower fixed interest rates, fixed payments, and longer payback periods than credit cards.
Advantages to choosing a business credit card over another form of financing for your business include, convenience, easier qualification, the ease of on-line transactions, record keeping assistance and the rewards and other incentives available with business credit cards.
Business credit cards also help to quickly build a credit history. They also provide ready access to cash when needed, to cover shortfalls in cash flow and for other immediate needs and expenses.
The negatives of credit cards include the fact that they are more expensive than other types of financing, with variable interest rates currently in the 14% to 17% range.
Account signers are personally responsible for outstanding balances, which is a negative feature. Credit cards are also less secure than other financing tools and could be misused by employees.
Reasons to be Careful with Business Credit Cards
While we’ve explored a number of reasons that business owners should apply for lower rate business credit cards, there are a number of differences in business cards that should be reviewed before any credit card applications are completed.
Unlike individual credit cards, banks that issue business credit cards can change interest rates without warning. Banks are also not limited to annual interest rate changes on business credit cards.
Business cardholders have less time to pay their bills and there is no limit on late fees and over-the-limit fees that banks may charge.
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