Applying for Credit Cards

Established business owners typically receive credit card offers in the mail on a regular basis. Some offers are even "pre-approved." Receiving these offers in the mail is usually an indication that your company should apply for a business credit card. However, with most of these offers, your credit limit and interest rate are not determined until after you apply for the account. In order to determine the limit on a business credit card and the applicable interest rate, the credit card company will evaluate several characteristics of the business history as provided on the credit card application.

Business credit card applications can usually be completed through a credit card company's secure online website. It is a good idea to consider applying for a business credit card at the bank that issued and maintains your business checking account. Since the bank already knows you as a customer, often the business credit card application process is simplified, and the credit cards can be issued more quickly, sometimes even automatically. By establishing a business credit card with your bank, it also enhances your business relationship with that bank, which may be useful in the future if you need to apply for a commercial loan or line of credit.

When authorizing business credit cards, establishing interest rates, and setting cash advance and spending limits, the financial institution that issues the card will consider many factors including:

• Business Credit History : The single most important factor when applying for a business credit card is the company’s credit history as reported by D&B or one of the other business credit reporting bureaus. If your business does not have any business credit, or has a history of slow payments etc., you may be denied. However, some business credit card companies will offer to approve the card if the owner is willing to give his or her personal guarantee.
• Annual Business : Some business credit card companies will only approve a business credit card for a company that demonstrates a certain predetermined minimum annual business. In some cases, this minimum could be $50,000 and in other cases it could be $1,000,000. Before applying for a business credit card, it is a good idea to find out what the finance company’s minimum expectations are so that you don’t waste your time applying for an account that you will not qualify for.

Just like many people have more than one personal credit card, many companies have more than one business credit card for certain purposes. Some companies use one credit card for employee expense account charges, another for business necessities. Either way, it is helpful to have two or three business credit cards. What you don’t want to do is negatively impact your business credit rating by applying for too many business credit cards or charging up high balances.

Credit Limits on Business Credit Cards

Every business credit card has a different credit limit associated with it. While the financial institution may advertise a certain high-level limit, you may not qualify for the highest possible limit when you are issued your first credit card.

Lending Criteria

Lenders base your credit limit on a variety of factors. The line of credit you are offered will depend on your business credit rating and overall profile.

When a lender establishes a credit limit on a business credit card, it goes through almost the same process that is used for any commercial lending. The financial institution reviews the company’s business credit rating (if there is one), and often it will require that smaller business owners provide personal information as well as a personal guarantee on the credit extended. The biggest difference between applying for a business credit card and a formal line of credit from a bank is that no business plan or financial statements are required.

Often, the financial institution issuing the business credit card will establish an initial line of credit, such as $20,000 based on a review of a businesses credit history. However, if a higher line of credit is requested, often additional documentation such as financial statements is required and can add additional time to your credit approval timeline.

How Much Credit Can You Get?

Most companies think that it is better to get as much credit as possible, but it is important to remember that you must be able to demonstrate your ability to successfully manage that credit in order to maintain your strong credit rating.

Your combined credit profile, including your company assets, financial needs, and the overall state of your business finances should all contribute to the amount of credit you request and will be considered when a lender decides what they will feel comfortable extending to you. It is important to anticipate not only your financial needs, but what you can and cannot manage in terms of financial responsibility.

One way to help determine a manageable credit limit is to predict an amount that is small enough so that you can pay it off in full for at least one month during the year. This demonstrates solid business practice and shows that your finances are under control. If you cannot pay off your credit card in full for at least one month during the year, it may be seen as a reflection that you have borrowed too much, or that your income is not what you expected, or that some other form of financial trouble is affecting your business.