How to Apply for a Business Credit Card (and Get Approved)
By Emma Martin | Published on 24 Oct 2022
Table of Contents
Using a business credit card makes it easier for business owners to keep their personal and business expenses separate. It is also much easier to complete a business’s bookkeeping at the end of each month if most of the business expenses are on one statement.
Business credit cards also provide a business with cash flow flexibility, as a business can pay for expenses upfront using the card and pay them off later. If a business pays off the business credit card balance each month, it won’t be charged interest, and the business will have access to cash for free.
No business credit score, no problem
If banks or finance companies relied strictly on the creditworthiness of a new or small business, they wouldn’t issue many business credit cards because the business in question wouldn’t have much or any credit history. Similar to how young people with no credit history need a co-signer to personally guarantee their credit card, a new or small business owner will need to personally guarantee they will cover any debt carried on the business credit card.
Whether the business is approved for a business credit card will then depend on the business owner’s personal credit score. If a business owner’s personal credit history and score are poor, there are no options for a third party to co-sign or personally guarantee they will pay any balance on the business credit card.
Business credit cards with business partners
If a business is a partnership, there are a few things to consider when applying for a business credit card. There are options for joint business credit cards between business partners, but it is simpler to have one partner guarantee the business credit card and have the other partner as an authorized user of the card.
In this situation, it would be smart for the partners to either have a simple letter agreement or add to their partnership agreement that debts incurred by the business will be covered equally by each partner in the event of dissolution.
The risk of having a joint application and guarantees is that any disputes between the partners resulting in non-payment can affect each of their credit history and scores while they work out their disputes.
Business credit card options for entrepreneurs with low credit scores
It isn’t uncommon for entrepreneurs to have a poor credit history and score. Even with a poor credit history and score, entrepreneurs have a couple of other business credit card options to explore.
Secured business credit cards
Entrepreneurs who have a new or small business will find it difficult or impossible to get a business credit card if their personal credit history and score are low. This is due to financial institutions requiring a personal guarantee from the entrepreneur, where they will be personally responsible for any credit card balance if the business is unable to pay.
One way for an entrepreneur to get a business credit card with a poor credit history and score is to apply for a secured business credit card.
A secured business card requires the business owner to put down a deposit with the financial institution or bank and this deposit would be used to cover the balance of the business credit card if the business no longer operates.
The security deposit required will depend on the amount of the credit limit requested and is either the full amount or a percentage of the credit limit provided.
Prepaid business credit cards
Prepaid business credit cards are a popular option for entrepreneurs who have poor personal credit and need access to a business credit card to make business purchases.
A prepaid business credit card is essentially a substitute for cash and the limit of the prepaid credit card will be the amount of cash put on the card. As such, a prepaid business credit card is similar to a debit card.
A drawback to a prepaid business credit card is that even though it is called a credit card, the business owner only uses the money they put on the card and is not borrowing money. As a result, prepaid business credit cards do not have an impact on the entrepreneur’s credit history and score.
If an entrepreneur is looking to improve their credit history and score, a secured business credit card would be the best business credit card option if they have the funds available to provide security.
Frequently asked questions about applying for a business credit card
No. An individual cannot apply for a business credit card without a business.
Yes, you can apply for a business credit card with poor personal credit. However, the available options may be limited, or the application won’t be approved as they will use a business owner’s personal credit score to determine whether to approve them or not.
Poor credit history and score with entrepreneurs isn’t uncommon, and a secured business credit card is an excellent option. A secured business credit card will give the entrepreneur access to the benefits of a business credit card. It can also help rebuild the entrepreneur’s credit history and score at the same time.
Yes, it may be affected temporarily. A hard credit check will be completed on the business owner’s personal credit history, and their credit rating is likely to experience a temporary hit.
Businesses will need the following when applying for a business credit card: legal business name, physical mailing address; business phone number; annual sales; net profit; the number of years owned; the number of corporate directors; and type of business. Some banks may have other requirements, and it is best to reach out directly to a bank or financial institution.
The majority of banks and financial institutions will require a personal guarantee to reduce their risk if the business can’t make payments. A personal guarantee requirement is less likely once a business has a solid track record of revenue and positive cash flow.
