The idea of being self-employed is a long-held dream for many people but because the path to realizing that dream is cluttered with hard decisions and self-sacrifice, most people balk at the most important step that they must take in creating an entrepreneurial future: committing to a plan and taking action! First steps might include creating a business plan, organizing a home office separate from your living quarters, assembling a team if necessary, creating an efficient, professional and fully functional web presence and, of course, securing and building the credit profile of your new company.
Among the many benefits of establishing business credit for your company is that it will lend your new business credibility and will provide the cash flow necessary for growth. The first and most important step toward establishing a credit presence for your new business is to research and apply for a business credit card. Take the time to compare cards as there are many different cards to choose from with a wide and varied array of both benefits and fees. For example, a business card usually carries a higher credit limit than a personal credit card which will help your business with cash flow and allow you to use the bank’s money interest-free — as long as you are able to pay your bills on time. At the same time, some business credit cards have higher interest rates which can be detrimental if you spend more than you can afford to pay back in the allotted time and cannot make the required payments.
Make sure, too, to check for the perks, discounts and rewards that some business cards provide. As an example, American Express OPEN provides savings and discounts for small businesses on items that are required each day such as office supplies, shipping and travel related expenses while other cards offer cash back on all qualified business expenses. Miles, trips, merchandise, tickets, free additional cards for your employees… simply research, compare and decide what works best for your company.
Many business cards do charge for additional cards as well as for annual fees but if you use the card to charge purchases frequently, it is highly likely that the rewards will easily exceed these fees. Most business credit cards also provide year-end records of all purchases sorted by category which takes some of the stress out of tax preparation. Some companies also offer small business advice and mentoring as well as interest free checks and other services that could make starting your new business easier.
It should be noted that while it is possible to use a personal credit card for business expenses, it is strongly recommended that a new business owner keep personal expenses and business expenses separate for both tax reasons and to ensure that your personal assets are not affected by anything that happens in the financial dealings of your business. In making this decision, you should also keep in mind that business cards are not currently included in the safeguards provided under the CARD Act (Credit Card Accountability, Responsibility, and Disclosure Act) which established consumer friendly laws designed to govern personal credit cards. While similar protections for business cards are working their way through Congress, if you have concerns regarding the protections provided by the CARD Act, you could consider making one of your personal cards your “business” card for the time being. Also, if you are the sole employee of your business and are not yet incurring significant expenses, it may not be necessary to obtain a business card just yet.
When you take the leap and start your own business, it is important to do your research and make a good choice in regards to your business credit. To this end, decide what your credit needs are, consider all of your options and apply for the card that will help your company in its first days as well as when it becomes a more established – and successful – business. And good luck!