Beginning a new business is an exciting yet challenging term. As a new business owner, you need to make many important decisions in the early days that will impact the future success of your company. One of those key choices is whether or not you should apply for a small business credit card.
What are the pros and cons of getting a credit card for a brand new startup? What options are available? Will you even qualify for a card with no business credit history?
This comprehensive guide examines if and how new businesses can obtain their first credit card.
What is a Business Credit Card?
Types of Business Credit Cards
Before weighing whether a new business should apply for a credit card, it’s important to understand what a business credit card is and the options available.
A business credit card is very similar to a personal credit card, except it is issued to a company rather than an individual. The business is responsible for all charges, not the cardholder. Business cards offer some key benefits, including:
- Separating personal and business expenses
- Earning rewards like cash back, points, or miles on business spending
- Building business credit history
- Flexible spending limits and employee card options
There are several styles of business credit cards to pick from
Small Business Credit Cards
Ideal for new startups, these cards have lower credit requirements and spending limits. However, they offer great features like employee cards and rewards.
Corporate Credit Cards
Offer higher limits and premium rewards but require strong business credit. Best for established medium/large companies.
Unsecured Credit Cards
Don’t require any collateral to secure the account. Easier to qualify for but have lower limits.
Secured Credit Cards
Need a protection promise that acts as the credit limit. Good option for poor personal credit applicants.
Must be paid in total every month. No interest charges but high spending power for big purchases.
Should a New Business Get a Credit Card?
Weighing the Pros and Cons
Obtaining a credit card is an important early step for any enterprise. But is it the right move for a brand new, just-launched business? Here are some key pros and cons to consider when making this decision:
- Starts building business credit history which helps qualify for financing later
- Separation from personal expenses and accounts
- Access to flexible spending power and liquidity
- Opportunity to earn cash back, points, miles, or other rewards
- Can be used for online expenses like advertising and software
- Convenience of consolidated spending and vendor payments
- business must be able to confidently pay off balance monthly
- too much access to debt can be dangerous for young companies
- balance responsibility stays with business if employee misuses card
- too many new accounts may hurt personal credit scores
- applying and getting denied can impact business credit scores
As this summary of pros and cons shows, there are compelling arguments on both sides of whether a new business should apply for a credit card in its early days. Much depends on the specific financial circumstances and discipline of the company.
Qualifying for a Card with No Credit History
What Banks Look For
The biggest obstacle for any startup seeking a first credit card is lack of established business credit. Most card issuers want to see that track record of responsible usage before approving an account. However, it is possible to get approved for that critical first card in some cases. Here are some tips:
- Seek out startup-friendly card options that require shorter time in business
- Highlight strong personal credit history of owner on application
- Provide documents to prove financial readiness like business plans and bank statements
- Apply for low limit secured cards which reduced risk for issuers
- Consider adding an employee or spouse as co-applicant whose credit can help
- Open checking/savings accounts with the bank to establish relationship
- Be prepared to provide deposits or collateral to lower credit risk
With some preparation and research into new business friendly credit cards, you can increase the chances of approval without established business credit.
Best First Credit Cards for New Businesses
Top Provider Options
While getting that first card presents challenges, several banks and credit card companies do cater to the startup market. Here are reviews of some top recommended first card options for new businesses:
Chase Ink Business
Cards Chase offers new businesses both secured and unsecured card options with low spending limits. The cards also come with valuable rewards points bonuses and 0% intro APR periods.
Capital One Spark Cards
Capital One Spark Miles and Cash cards are specifically designed for early stage businesses. They offer 2% back on all purchases along with some of the most new business friendly qualifications.
Credit Card BlueVine issues Visa cards tailored for small business with customized limits and no personal guarantee required from owners. Easy to qualify but requires use of BlueVine checking account.
Brex Credit Card
Brex issues corporate cards for startups backed by VC funding. Higher limits with no personal credit checks required. Best for funded startups with some financial cushion.
Final Take: Start Building Credit Early But Cautiously
While considered an important early step, obtaining a business credit card does require careful consideration of pros, cons, options, and business financial readiness.
Apply with a startup-friendly provider when the time is right, use the card responsibly, and start building that all-important business credit history.
Just be sure to first weigh if the access to debt is prudent and whether it will help – not hinder – achieving your young company’s future financial goals.
Frequently asked questions
Some of the easiest business credit cards for a new business to get approved for are secured credit cards like Capital One Spark Secured and Brex Cash. These require a refundable security deposit that becomes the credit limit. No business credit history is required.
No, a new business does not need an Employer Identification Number (EIN) to get a business credit card. You can apply using only your name, social security number, and business information. However, getting an EIN can help strengthen your business credit profile.
Most credit card issuers prefer at least 1 year of operations. However, some cards like Capital One Spark Cards allow much shorter periods of just a few months in business.
Yes, for a brand new startup with no business credit yet, the owner’s personal credit score and history will be considered by card issuers. Having good personal credit can significantly help your chances of approval.
Business credit card inquiries and denials do not directly affect your personal credit reports and FICO scores. However, too many credit checks from business card applications can sometimes indirectly impact your personal credit standing.