Starting a business is never easy. Competition is fierce — even more so for small businesses, which often have to take on much larger contenders but with a lot less capital. A business credit card can be an invaluable tool to support and grow your new business, with many cards offering initial credit lines of as much as $50,000.
But getting a business credit card when your business is young and doesn’t have a credit history can be challenging. Here are some effective ways for new business owners to acquire credit, establish a healthy business credit rating, and grow an enterprise.
Secured Business Credit Cards
One option for new business owners is to open a secured credit card account. Oftentimes these cards offer low interest rates and can help you build a positive business credit history. However, they require you to offer up some kind of collateral, such as real estate, shares in your business, or even the business itself. Small businesses that have suffered financial setbacks can use secured business credit cards as a way to get back on their feet and reestablish their credit.
But you should consider this option carefully to make sure it’s the best fit for your business. Secured accounts may have higher fees than other small business credit cards, and in most cases they tie up your cash flow because they require cash deposits to cover your credit line.
Starter Business Credit Cards
Starter, unsecured business credit cards can be a great option for new small business owners who have good personal credit. Many credit card companies are willing to open business accounts for people in this situation. If you have a solid personal credit history with a particular credit card issuer and are seeking funds to launch a new business, approach that issuer first. Most of the time, if the issuer has a business division, it will open a new account for your business or convert your existing personal account into a business account.
Starter accounts usually have competitive rates, good benefits, and company discounts for card members. They generally don’t have application fees and may offer the best rates available.
“Bad Credit” Business Credit Cards
Bad credit is a common problem for owners of young businesses. They land an initial loan to get started, the maintenance or expansion of the business requires more funding than expected, and this leads to late or missed payments, which wreaks havoc with their credit score. “Bad credit” business credit cards can help people in this situation get back on track. These credit cards are available to just about everyone, even in cases in which a company has recently declared bankruptcy.
Though terms vary from lender to lender, bad-credit cards are typically secured with your own money. For example, you send the credit card company $500 and then the company gives you $500 in credit. This may seem like a waste of time but it’s actually a useful option. The bottom line: You’ll have a credit card if you need one and it will help you repair your credit over time.
If you’re approved for such a card, use it prudently at first by making small purchases that you can repay quickly. Bad credit business credit card companies also report to the major credit bureaus. If you make your payments in full every month, your business credit reports will reflect that and your credit score will improve. These cards can be a great first step to building a brighter financial future, so don’t overlook them.