How to Get a Business Credit Card for an LLC? (Super Easy)
Getting a business credit card for an LLC is the first step to establishing its credit history. There are several charge accounts offered by financial institutions; that’s why it is essential to explore the available options to make an informed decision.
As a mergers and acquisitions specialist and a Master's degree holder in tax law, I assisted several businesses and entrepreneurs in acquiring business credit cards for their companies.
After thorough research and collaboration with our team of lawyers, we'll share our insights on how to secure a credit card tailored for your LLC's specific needs.
Quick Summary:
- To get a business credit card for an LLC, determine your eligibility, choose a card that meets your needs, initiate the application process, and submit all required documents.
- You will need to provide basic details about your LLC, including the business name, entity type, potential annual revenue, EIN, and number of employees.
- In 2020, 21% of businesses sought funding via business credit cards, as per the Small Business Credit Survey, demonstrating their importance as a financial resource.
- To separate business credit from personal finances, I inform clients to apply using their EIN instead of their SSN.
How to Apply for an LLC Business Credit Card?
To apply for an LLC business credit card, pick the appropriate credit card you are eligible for, then apply by submitting all the requirements.
Step 1: Research Your Options
If you already have a business account, inquire about their interest rates on credit cards and use it as a basis. Having a business bank account with the bank issuing the credit card can simplify the application process.
In 2020, according to the Small Business Credit Survey, a significant proportion of the business landscape shifted, as 21% of businesses sought funding via business credit cards to navigate through uncertain economic conditions [1].
Request information from other banking institutions regarding interest rates, annual fees, rewards, and credit limits.
Compare and fully understand the terms and conditions of each before submitting an application for a suitable credit card with the bank that has the best offer.
Step 2: Determine Your Eligibility
Assess your available options and determine which credit card you have the most chance of qualifying for. Your personal and business credit histories are the main criteria for this determination.
Additionally, having significant assets and substantial commercial income will increase your chances of qualifying for a better business credit limit.
To improve my chances of being approved for a business credit card, I ensure that I have a good credit score. Most business credit cards require a credit score of 670 or higher [2].
"If you don't have the money management skills yet, using a debit card will ensure you don't overspend and rack up debt on a credit card."
- T. Harv Eker, Businessman, Motivational Speaker & Author
Step 3: Choose a Card that Meets Your Needs
You should select a card that aligns with your specific requirements, including a rewards program.
Take into account the interest rates and consider the credit limits provided by these cards, especially if you anticipate high-volume purchases. If your business involves frequent travel, consider cards that offer travel rewards to maximize your benefits.
While considering which business credit card aligns with your LLC's financial strategy, it's noteworthy to mention that back in 2016, 4.92% of businesses used business credit cards for start-up funding, contrasting with 9.11% who relied on personal credit cards, as per Business Bureau stats [3].
This illustrates the critical role that business credit cards play in funding new ventures, highlighting the need for a careful selection that suits your business requirements.
Step 4: Initiate the Application Process
Once you have narrowed down your options, you can contact your preferred financial institution and begin the application process.
Step 5: Submit All Required Documents
My clients needed to provide basic information about the company, including their credit score and history. After filling out the application form, you can proceed with submitting all the necessary documents.
The issuer evaluates the provided information to determine the business's eligibility for a business credit card.
Additionally, you will need to provide your personal credit rating and history.
If you are the sole employee of your business, you will apply as an individual business owner. In this case, your business credit will be linked to your SSN, and business cards will be reported on your personal credit report and score.
However, if you plan to hire employees, you can opt for a business credit card for small entities. It will be issued to your business EIN instead of your SSN, and the associated transactions will appear on your business credit report.
When applying for a business credit card as an LLC, I advise clients to seek assistance from a friend or family member who can act as a personal guarantor to complete the process.
Importance of Building Business Credit for Your Company
Building business credit is vital for any LLC, as it offers numerous benefits:
- Separate Credit Identity: Establishes a distinct credit profile from your personal credit, protecting your personal credit score.
- Better Loan Terms: Qualifies your business for more favorable loan terms and lower interest rates.
- Increased Credit Limits: Provides access to higher credit limits, enhancing your company’s financial flexibility.
- Improved Cash Flow: Helps manage cash flow more effectively by providing a buffer for business expenses.
- Enhanced Credibility: Boosts your business’s reputation and credibility with suppliers, lenders, and partners.
By focusing on building strong business credit, you can ensure your LLC is well-positioned for financial success and growth.
How Business Credit Differs from Personal Credit
Business credit and personal credit differ in several key aspects:
- Creditworthiness Basis: Business credit is based on the financial health and credit history of the business, while personal credit is based on an individual’s credit history.
- Scoring Methods: Business credit scores are calculated differently from personal credit scores, often using different criteria and scales.
- Credit Bureaus: Business credit reports are maintained by specialized bureaus like Dun & Bradstreet, Experian, and Equifax, separate from those that handle personal credit.
- Evaluation Purpose: Business credit is used to assess the creditworthiness of a business entity, whereas personal credit evaluates an individual’s ability to manage personal debt.
Understanding these differences is crucial for effectively managing both your business and personal credit profiles.
Build Business Credit Using Your EIN
If your company is already an established entity, you can build business credit quickly by using your Employer Identification Number (EIN). Credit card companies often require a good personal credit score and may ask for additional documentation during the application process.
Applying for a credit card using an EIN maintains a clear distinction between your personal credit history and your business credit profile. This separation ensures that any unfavorable personal credit ratings do not impact your business credit scores.
Note that newly formed entities are not eligible to use the EIN for credit card applications. Lenders will require a Social Security Number (SSN) instead.
What Is the Fastest Way to Get Business Credit for an LLC?
There is no fast way to get business credit for an LLC. Individuals must work on maintaining a high rating and a good credit history to be approved, meaning they need to manage business expenses properly and efficiently.
Can You Get a Business Credit Card With No Revenue?
You can get a business credit card with no revenue as long as you are earning money from the work you do and you report personal income information on the application.
Many business credit cards offer rewards programs and other benefits that can be advantageous even for new businesses with no revenue.
In my experience, some issuers allow newly formed entities to apply for business credit if they can present a sales projection for their business.
Contact your local bank to obtain the information. In most cases, they will approve when they're certain you can pay for business expenses with your finances.
Does an LLC Have a Credit Score?
An LLC has a credit score because it is considered a business entity. It reflects a business owner's creditworthiness and personal responsibility for repaying business debts.
Consider business credit cards that have no foreign transaction fees if your business involves international operations or frequent travel.
Company owners can request their business credit scores from the reporting agency at any time.
Upon making their request, business owners should expect to see their business credit scores and personal credit scores.
Typically, business owners will be able to verify that their business and personal interests are separate by reviewing their business and personal credit reports and scores.
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Best Practices for Using Your Business Credit Card
To maximize the benefits of your business credit card, adhere to these best practices:
- Business Expenses Only: Use your business credit card exclusively for business-related expenses to maintain clear financial records.
- Low Credit Utilization: Keep your credit utilization ratio below 30% to positively impact your business credit score.
- Timely Payments: Always make payments on time to avoid late fees and interest charges, which can harm your credit score.
- Leverage Rewards Programs: Take full advantage of rewards programs and cashback offers to get the most value from your business spending.
- Monitor Statements: Regularly review your credit card statements to catch any errors or suspicious activity early.
- Secure Information: Keep your business credit card information secure and confidential to prevent fraud and unauthorized use.
By following these best practices, you can build a robust business credit profile, enhance your company’s financial flexibility, and make the most of your business credit card.
FAQs
What’s the Highest Business Credit Score?
The highest business credit score varies depending on the credit reporting agency that is used. However, a business with a score of 800 or higher is generally considered to have an excellent credit rating.
How Do I Build Up My Business Credit Without Using My Credit?
You can build up your business credit without using your credit by applying for a company credit card and establishing a trade line. A trade line is essentially a record of your company's credit history with a certain vendor.
Can My LLC's Credit Card Usage Impact My Credit Score?
Your LLC’s credit card usage cannot impact your credit score if your personal and business finances are separate.
References:
- https://www.fedsmallbusiness.org/medialibrary/FedSmallBusiness/files/2021/2021-sbcs-employer-firms-report
- https://www.census.gov/data/tables/2016/econ/ase/2016-ase-characteristics-of-businesses.html
- https://www.cnbc.com/select/what-is-a-good-credit-score/
