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Myth #1: Credit card debt is always a bad thing
You might ask yourself, “Are business credit cards good or bad?” The answer depends on your situation.
In fact, credit card debt can be beneficial for businesses when you use them strategically and responsibly. Credit cards are a short-term financing option that can help manage cash flow gaps, cover unexpected expenses, or invest in growth opportunities.
By using credit cards, small business owners can access funds more quickly than many other funding options. This helps business owners to use business debt for growth by:
- Taking advantage of investments that would otherwise be out of reach.
- Purchasing necessary equipment or inventory.
- Helping build a positive credit history for the company (depending on the card).
Also, many business credit cards offer rewards programs or cash back incentives. This means your business can earn back on what you’re already spending, which can help lower your overall operational costs.
However, it’s necessary for cardholders to manage credit card debt carefully and responsibly. Make sure you make at least the minimum payment by — or before — the due date to avoid wracking up excessive interest charges or fees, or hurting your credit. On-time payments help prevent negative impacts on your business’s financial health in the long run.
Myth #2: Business credit cards don’t help me build credit
Many small business owners believe that using business credit cards won’t help with their business credit scores. In fact, the opposite can be true: Some business credit cards send your payment activity to one or more of the three major business credit bureaus. Some business cards even report payment history to personal credit bureaus, which can help you build personal credit history.
Why does this matter? Having solid business credit can help you get lower interest rates and better repayment terms on small business loans.
If you’re new to business credit, learn how to establish business credit in this guide from Nav.
Does an LLC have its own credit score?
Yes, an LLC can establish and build its own business credit scores separate from the personal credit scores of its owners. Building a business credit score involves establishing credit accounts in the LLC’s name, like a business credit card or a net-30 account, and consistently making payments by (or before( the due date. Additionally, demonstrating responsible financial management, maintaining low credit utilization, and having a positive payment history can help to improve the LLC’s credit score over time.
Like a consumer credit score is important for individuals, building a strong business credit score is essential for the long-term financial health of an LLC. A better business credit score can increase the likelihood of getting favorable financing terms, accessing larger lines of credit, and establishing relationships with vendors and suppliers.
So, do business credit cards help build business credit?
It depends. Responsibly using some — but not all — business credit cards can help build business credit history. Most cards report to only one or two of the three of the major business credit reporting agencies, however.
Some credit card issuers that report to at least one business credit bureau at the time of writing include:
One of the highest cash back rates available for small business cards.
Pros
- Attractive intro financing offer
- High rates of cash back for business spending
- No annual fee.
Cons
- No rewards bonus for initial spending
- Foreign transaction fees.
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Check out this Nav guide for more on business credit cards that report to business credit bureaus. Keep in mind that reporting can change at any time, so it’s a good idea to check with the credit card provider to make sure they’re still reporting your payments.
Myth #3: Business credit cards are too risky for small business owners
Some business owners think credit cards are a risk to use, but that’s only true if you don’t know how to use it responsibly. In fact, it can also be a risk to not have access to a cash flow buffer for times of unexpected expenses. You may risk not making payroll, not paying off your bills on time, or not being able to restock inventory.
Let’s get into more details about the true risk of business credit cards.
What are the pros of business credit cards for small business owners?
- Provide a convenient way to separate personal and business expenses to simplify and improve accuracy in accounting and tax reporting and maintain compliance.
- Often come with higher credit limits than personal cards.
- May offer rewards programs tailored to business needs, such as cash back or travel rewards, on spending categories for common business expenses.
- Using business credit cards responsibly may help establish and build a strong business credit profile.
What are the disadvantages of using credit cards in small business financing?
- Might have to pay an annual fee, as well as interest rates on any revolving credit card balance.
- Could rack up too much business debt if you’re not careful. Learn about getting your business out of debt.
- Will likely have to agree to a personal guarantee, which means you agree to pay off any debt the business can’t afford with your personal finances.
Myth #4: My business is too new to get a business credit card
You may qualify for a business credit card — even if your operation is a startup or brand new small business. You don’t necessarily need an established business credit profile to qualify for a business credit card. In fact, most business card issuers look at your personal credit score when deciding whether or not to issue you a new credit card.
Plus, there are business credit cards, secured cards, and charge cards for bad credit. So even if your personal credit isn’t top-notch, you may still be able to get the business card you need.
How long does it take before a new company can open a business credit card?
There’s no exact time limit. Your ability to get a business credit card relies heavily on your personal credit scores, so your business doesn’t need to have been around for years to become eligible for one. If you’re a brand new business owner with great or excellent personal credit scores, you may be able to qualify for a business credit card today.
There are also many options for small business owners with bad credit, including charge cards like the Nav Prime Card built into Nav Prime.
Nav Prime Card
Lowest minimum requirements on the market. Available with Nav Prime.
Pros
- The Nav Prime Card is the only business credit-building charge card with no credit check, no personal guarantee, and no security deposit
- Nav will report your everyday purchases as a tradeline
- Access the Nav Prime Card as part of Nav Prime — the only solution that lets you track your credit progress while simultaneously building your business credit.
Cons
- The Nav Prime Card does not offer a traditional 30-day repayment window like many other charge cards
- The nav Prime Card has an automatic 24 hour repayment window.
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Myth #5: I can’t get a business credit card as a sole proprietorship
You probably don’t need to go through the process of establishing your business as an LLC or corporation before you can qualify for a business credit card. Most business cards are open to sole proprietors since eligibility relies heavily on your personal credit scores. If you have good or excellent personal credit, you may qualify for a variety of business credit card options.
Even if your personal credit is lacking, you may still have options for business credit cards. It’s a good idea to consider business charge cards or secured cards if you can’t get a standard business credit card.
Who can get a business credit card?
Anyone with an operating business and an established personal credit history is eligible to apply for a business credit card. You don’t necessarily need to have an established LLC or corporation to apply. Keep in mind that most business credit cards require you to use them exclusively for business purposes.
Is It Advisable to Have a Business Credit Card?
The bottom line is that a business credit card can be an extremely valuable tool for small business owners. It’s usually easier to qualify for than small business loans, and it can boost your cash flow to give you an emergency buffer. Plus, these cards can give you business-focused rewards on everyday purchases. As long as you use business credit cards for your business in a responsible manner, they may even help you build business credit.
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Tiffany Verbeck
Digital Marketing Copywriter, Nav
Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.