Startup businesses need as much funding as they can get. However, some startups are pre-revenue or unprofitable and need capital to maintain the underlying company. Credit cards can help these startups raise funds and improve their credit score. A higher credit score will help experienced, and new business owners get higher loan amounts and lower interest rates.
Most credit card issuers conduct a hard inquiry during the application process. This credit check gives business credit card issuers a better understanding of your credit history and debt management skills. Unfortunately, some small business owners do not have credit. Is it still possible for these startup founders to get business credit cards? We will discuss some factors to consider and how startup founders can obtain financing.
What is Considered a Startup Business for Lenders?
Startups have various definitions, depending on who you ask. Some people will mention pre-revenue companies, while others will say startups are unicorn companies that need cash. Startups are relatively new businesses seeking to validate their business models and scale their operations. Some are profitable, while others require startup funding to stay alive.
Startups are riskier for lenders since approximately 80% of them fail. Most small business lenders and financial institutions have stricter guidelines for startups to mitigate risk. Having a good credit score will increase your odds of qualifying for a loan, and a business credit card can help with that objective.
Is It Possible for Startup Businesses to Get Credit Cards with No Credit?
While some business owners may view opening a business credit card as an uphill battle, credit card issuers make accommodations for startup founders. You can qualify for a business credit card if you have a solid personal credit history. A good personal credit report demonstrates your ability to effectively manage debt, something every creditor wants to see in an applicant. Using your personal credit card effectively can help you secure a business card and build your business credit score.
Even if you have poor personal credit, you can still get a business credit card. A secured business credit card is more accessible and gives you the opportunity to repair your credit score. However, these secure business credit cards require a security deposit that acts as your credit limit. You have to fund a secured business credit card with your own money before you can borrow against it. Startup owners with bad credit can use this credit card to improve their credit history and then apply for an unsecured business credit card in the future.
How to Choose a Business Credit Card for Startups
Startup founders can select from various business credit cards, but some are better than others. These criteria will help you determine which card is optimal for your startup.
Determine Minimum Security Deposit and Payment Requirements
Credit cards use minimum requirements to reduce risk and increase earnings. While most credit cards have minimum monthly payments, you also have to consider the minimum security deposit for secured business credit cards. A high minimum security deposit and low credit limit can make a credit card less enticing. You only get the minimum security deposit back if you close your credit card or upgrade to an unsecured card. It can take a while for either of those scenarios to happen, and closing your card isn’t the best decision for your credit report.
Review Credit Score Requirements
You don’t want to apply for a credit card that’s out of your range. You’ll end up with a hard inquiry, a few points are taken off your credit score, and no business credit card to show for it. Credit card issuers lay out their credit score requirements, and knowing your score will help you know if you qualify or not before submitting an application. In addition, some business credit card providers let you use your personal credit score when applying for a card. This can help startup founders who have good personal credit but no business credit.
Compare Interest Rates
Interest rates play a critical role in how much your debt accumulates if it remains unpaid. Higher interest rates will make it more difficult to climb out of the hole. Some credit card issuers offer introductory periods with 0% APR, making it easier to repay current debts. Cards with 0% APR on purchases give you the opportunity to rack up debt without worrying about interest rates right away. While you will have to worry about APR in the future, not worrying about it now helps startups that have critical needs in the present. The 0% APR period gives startups enough time to figure out their business models and possibly become profitable.
Some credit card companies are more generous with their introductory periods, while others don’t offer them to their cardholders. Business owners should also look beyond the introductory APR to see what they will have to pay in the years ahead. You can expect higher interest rates if you have bad credit or use a secured credit card. However, you can improve your rate by making on-time payments, maintaining a low credit utilization, and applying other credit-building strategies. Many of the tactics that work for your personal credit score also strengthen your business credit history.
Tailor Your Card to Your Business Spending
Business credit cards can help you invest in your business, but some cards give you more flexibility. You should assess credit limits to see if your credit card provider is giving you enough startup funds. A credit limit under $2,000 is not sufficient for some startup founders. A $10,000 credit line may not be enough for some small business owners. Reviewing your business finances will help you arrive at an optimal credit limit. Knowing this number can help you narrow the choices. You should look for a small business credit card with a good credit line that does not feel restrictive.
Some startup owners have high expenses at the moment. These founders may have expanded their staff recently or purchased a commercial property. Getting your business credit card when your costs have increased in the short term can help you fully capitalize on the introductory 0% intro APR on all purchases. In addition, some businesses use introductory 0% APR rates to transfer an old business credit card’s balance to a new card with the introductory rate.
Consider Fees and Other Costs
Business cards can have various costs. You should review how much you will get charged for making late payments, exceeding your credit limit, and other expenses. A business credit card’s costs can quickly add up if you are not careful. Assessing multiple cards will help you understand fair costs and help you distinguish greedy credit card offers. Some credit card companies may charge annual fees, but most of the best business credit cards do not have those expenses. You can expect more fees for business credit cards than personal credit cards. It comes with the territory, but business credit cards also have better rewards.
Take Advantage of Benefits, Bonuses, and Rewards
Business credit cards let you tap into additional funds and build your credit with on-time payments. In addition, credit card companies utilize multiple perks to encourage business owners to work with them instead of getting business credit cards from competitors. For example, credit cards may have cashback on qualifying purchases, travel rewards, and other benefits.
Review the benefits of every credit card and consider which ones apply to your company. For example, most people would love cashback and bonus points on every purchase, but if you often travel to meet new prospects and long-term clients, a business credit card with travel rewards may be the better choice for you.
Although business credit cards have better rewards programs than most personal credit cards, make sure you only use your business card for business purposes. You can get in trouble if you use a business credit card for personal expenses, and the issuer can close your account under certain scenarios. If you only use your card for business expenses, you won’t have to worry.
Take Into Account the Lender’s Reputation
Business credit and loans can give your company the necessary capital to fund new ambitions, but scammers aren’t below-deceiving needy startup founders. Business owners should look at a lender’s reviews and conduct due diligence before working with them. Due diligence can help you identify fraudulent imposters. Most lenders will have a phone number and other ways to contact them. Reaching out to lenders will put you in contact with their support team. You will have to contact these people in the future if you work with the lender and have any questions.
This process will also help you narrow your list of legitimate lenders that could become long-term partners. Some lenders don’t do anything shady, but they have horrendous customer support and make business owners feel as if they are alone. When you work with a lender, you don’t only receive capital. You also receive additional resources and access to their support team. You may feel great about the capital you receive, but you should also feel confident in your lender’s ability to help you in case an issue comes up.
Review the Personal Guarantee
Many of the most popular business credit cards use personal guarantees as one of the eligibility requirements. Individuals opening the cards become personally responsible for any unpaid debt. This guarantee protects creditors, and they can report your activity to the consumer credit bureaus if you fall behind on payments. It’s important to closely monitor card use across employees and partners to ensure you do not accumulate too much debt. You can set a credit limit on each card to minimize the likelihood of excessive spending.
The Best Business Credit Cards to Consider
Entrepreneurs and new business owners can explore several business credit card opportunities. Here are some top picks to help you get started.
Chase Ink Business Preferred Credit Card
The Chase Ink Card is one of the best small business credit cards. Chase gives you 100,000 bonus points if you rack up $15,000 of business expenses within the first 90 days. It’s one of the best welcome offers available for small business owners, and you also get 3x points for the first $150,000 you spend. After that, you earn 1x points for every purchase. However, the card has a $95 annual fee, so keep that in mind as you look for the best card that fulfills your business needs.
First National Bank Business Edition Secured Mastercard Credit Card
The First National Bank Business Edition card is one of the few cards that won’t do a hard business or personal credit. Many business owners and consumers avoid hard credit inquiries because they have negative impacts on your credit score. A single hard credit check isn’t a big deal, but they can add up if you apply for too many credit cards. The card has a $39 annual fee, a 3% foreign transaction fee, and a 5% balance transfer fee. Interest rates are typical for most secured business cards, hovering a little over 20%. If you need cash advances, the interest rate on those proceeds will be closer to 30%. You can get a $2,000 to $100,000 credit limit depending on how much cash you put into the card.
Wells Fargo Business Platinum Card
The Wells Fargo Business Platinum Card is a good option for business owners with good credit. The Wells Fargo card greets you with a one-time $300 bonus if you spend $3,000 within the first 90 days of opening your card. Cashback from any credit card is a big deal, but that welcome program bonus is quite enticing. After that initial 90-day period, the rewards program is still excellent. You can earn unlimited 1.5% cash back on all purchases when you pay for business expenses using your Wells Fargo Business Platinum Card. Business owners can issue up to 99 employee cards with no additional fees.
Discover It Secured Credit Card
Don’t have the best business credit? The Discover It Secured Credit Card is a good idea for getting started as a sole proprietorship. You can start with a $200 security deposit or put more money down if you want a higher credit limit. This card offers 2% cashback on qualifying purchases and has no annual fees. You do not need a credit score to obtain a Discover It Secured Credit Card, and they report your credit activity to the major credit bureaus.