Getting a business credit card is much like applying for a personal credit card. In both cases, lenders want to know that they’re not taking an undue financial risk by extending you a line of credit. This means that before they’ll approve your application, card issuers will scrutinize your credit score, your repayment history, and even the years spent at your current residence. Some business credit cards come with costly interest rates for less-than-stellar credit scores, but many business owners feel that the buyer protection they receive is more than worth it.
What if your own credit report doesn’t paint a flattering picture? In that case, here are some steps you can take to maximize your chance of obtaining a business credit card.
Step 1: Know your credit score and take steps to raise it.
When you’re first starting a business, it won’t have enough financial history to qualify for a credit card. Therefore, card issuers will look at your personal credit history to help them arrive at a decision.
Sadly, we’re living in tricky financial times. While credit scores of 650-720 might have been excellent a year ago, cautious creditors are now looking for scores of 740 and higher. To ensure that you’ll get the card you’re applying for, you’ll need to settle old debts right away. Pay off loans and pay down other credit card balances. The goal is to maximize your ratio of available credit versus your total amount of debt. Lenders like to see a debt-to-credit ratio of 25% or less.
Step 2: Separate your business and personal finances.
Make your business into a corporation or an LLC. Confer with a business attorney or do some research of your own to find your state’s laws regarding small businesses. Until you set your business up as its own entity, you will be responsible for the debt it incurs – and your personal assets will be at risk.
Step 3: Increase the credibility of your business.
If you want lenders to treat you like a professional, you’ve got to look the part. Or, at least, your business needs to. That means that P.O. boxes and personal phone lines just won’t cut it. Set up a business line with a professional greeting, or at least have a devoted business cell phone where you can be reached. Set up an address for your business, either with a physical storefront or a business mailbox. This will make card issuers more favorable to the idea of giving you a business credit card.
Step 4: Look for co-signers.
Depending on the lender, co-signing might be an option. A co-signer agrees to assume the debt if you default on it, so make sure that your signer understands this responsibility. If co-signing isn’t an option, you can always apply for a personal credit card and use it exclusively to fund your business.
Above all, don’t give up! The first year or two is always the hardest phase for small business owners. Once your business is established and proven, you’ll have little trouble getting the financing you need.