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4 Reasons Every Small Business Needs Its Own Credit Card

Running a small business is more expensive than many people realize. The average cost of starting a small business was $35,000 in 2022, and that’s for an online-only business. Business owners who rent a physical storefront spend an average of $100,000 in the first year.

There are plenty of ways to cut costs and bootstrap it, so you certainly don’t need to spend that much. But every business has its fair share of expenses, and you’ll need a way to pay for them.

While some small business owners use their own personal credit cards, that’s not a good idea. When you have a business, you should get a business credit card, for a few important reasons.

1. Keep business expenses separate from personal expenses

When you use the same account for personal and business expenses, things get messy. It will be more complicated and time-consuming to review business expenses later. If you want to see how much money your business is spending, you’ll need to filter out your personal expenses first. The same is true if you want to check for tax deductions.

A business credit card makes your life much easier. All your business spending will be on a separate account, so you can more quickly sort through transactions and see what you’ll deduct from your business taxes. Many business credit cards also include detailed spending reports and other helpful features, such as integration with popular business accounting software.

2. Earn rewards on your business spending

If you have a good credit score, you’ll probably qualify for business rewards cards. Just to be clear, this is referring to your personal credit score. Card issuers still check this on business credit card applications. You don’t need a business credit score to qualify for a card.

Business rewards cards are a simple way to earn cash back or travel points on your business spending. This can be a sizable amount back. Some business cards earn a flat rate of 2% back on purchases, no matter the spending category. There are also cards with a lower base rate (normally 1%), but rates of 3% more in bonus categories.

Let’s say you open a business card that earns 2%. Your business spends $100,000 per year. That’s $2,000 in cash back every year that you could reinvest into your business.

3. Build your business’s credit score

Business credit scores work in much the same way as personal credit scores. There are three major business credit bureaus: Dun & Bradstreet, Equifax, and Experian. You’ll need to apply with Dun & Bradstreet to get a business credit score with it. Registration isn’t required with Equifax and Experian.

These bureaus will calculate a credit score for your business based on the information they receive. If you use a business credit card and pay the bill on time, that will help build your business credit score.

You’ll need a good business credit score if you decide to apply for a business loan in the future. Even if you’re not planning on that at the moment, it’s good to have the option.

4. Boost your spending power

With credit cards, it’s to your advantage to pay the bill in full every month. If you do that, you won’t be charged interest on your purchases. This is true with personal and business credit cards.

But there is a way to finance purchases on a business credit card without paying expensive interest charges. Some business cards have a 0% intro APR on new purchases. During the intro period, you’re not charged any interest on purchases you’ve made. You only need to make the minimum payment.

For example, if a card has a 12-month 0% intro APR on purchases, then you have a year to finance purchases interest-free. A word of caution: The APR goes up to the card’s standard rate after the intro period ends, so aim to pay off your balance before then.

Opening a business credit card

It doesn’t take long to open a business credit card. Start by picking the card you want — you can find suggestions on The Ascent’s list of the best business credit cards. I recommend figuring out the features that are most important to you first, such as cash back, a 0% intro APR, or travel rewards, to narrow down your choices.

Choose the option to apply for the card. In the application, you’ll need to provide your personal information and business information. If you haven’t registered your business, that’s fine. You can apply as a sole proprietor, meaning you apply with only your Social Security number and no Employer Identification Number (EIN).

A business credit card is a valuable financial tool that every small business should have. And the application process is straightforward, once you’ve found a card you qualify for. Open yours early on and you’ll have a convenient way to handle all your business expenses.

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