Overcome Business Credit Card Challenges

You know you must separate your personal credit from your business credit, but every application for a business credit card requires your social security number (SSN).  You understand that once a company has your social security number they will probably report your account activity to your personal credit history.  If you max out a business account it will not produce any negative impact on your business credit rating.  However, maxing out a personal account will destroy your personal credit scores.  What can you do?

Readers send more questions about business credit cards than all other topics.  After exhaustive research, I feel as frustrated as you do.  Until this spring, the one company where a start-up could qualify for a VISA or MasterCard using only their employee identification number (EIN) was Advanta.  Unfortunately, their risks with entrepreneurs cost them millions of dollars in write-offs due to defaults.  This spring they changed their business credit application; they now require an SSN to qualify for a business credit card. 

When you start reading the benefits, rewards, and rates offered on business credit accounts, you’ll realize they are often more appealing than personal accounts.  These credit cards are designed so anyone with good credit can qualify for one.  As a result, for owners of small businesses, the accounts fall into this quasi middle ground between personal and business, which is not always helpful when your goal is to build business credit.    

If you have excellent credit, qualifying for business credit cards will not be a problem.  However, you must be absolutely certain account activity is being reported to business credit reporting agencies, not personal credit bureaus.  These companies say they report your business credit card history to Dun & Bradstreet (D&B):  Bank of America, Chase, Citi, Discover Business Credit.  Neither Advanta nor American Express report to any business credit reporting agencies.  They do send data to your personal credit reports.

What can you do if you don’t have excellent credit?  First, establish a harmonious relationship with a truly local bank that cares about working with growing businesses in your community.  By following the steps in my series, You Can Build Awesome Business Credit, you’ll easily qualify for business accounts with suppliers.  You may need to rely on vendor/supplier accounts until you increase cash flow.  You can apply for a secured business credit card when you have cash to deposit in an account to secure the card.  This can be a viable alternative to develop your company’s business credit card history.

Keep impeccably accurate financial records.  Have a CPA handle your taxes and provide a certified audit of your financials at year-end.  Baby companies usually don’t think about doing this.  With a simple business, the cost will be negligible.  However, after two years, with CPA audited financial statements and an excellent bank reference, your company should qualify for corporate credit cards.  There is a distinct difference between business credit cards and corporate credit cards. 

What most entrepreneurs are searching for, especially if they came out of a job where they were issued a company credit card, are corporate credit cards.  These are specifically designed by financial institutions to meet the needs of corporations.  They require a minimum of two years of audited financial statements and are often issued by the bank with which a business has established its primary relationship.  They require only an EIN and a company’s officer is not required to guarantee the account. 

It is important to know that local banks make exceptions to their business credit card account rules all the time.  When you establish a rapport with a local bank and they see (by your cash flow in their institution) that you are managing a growing and vital business, they will want to extend additional services to you, including business or corporate VISA and MasterCard accounts.  Be certain any account you open for your business will be reported to business credit reporting agencies and will not be reported as part of your personal credit history.

With tightened credit requirements across the financial spectrum, start-ups are feeling the squeeze in many ways.  However, careful planning and execution can produce all the credit you'll require over time.