How To Get A Business Credit Card For Your eCommerce Business

On a personal level, many people still hesitate when it comes to using credit cards, but for business professionals, credit cards are a lifeline for much needed credit and spending. When establishing a business, you need to have the ability to make purchases quickly both online and in person. 

Obtaining a business credit card is not only convenient, but it is a necessity in many situations. From emergency situations to financing expenses, credit cards are often easier to obtain than bank loans or lines of credit. We have compiled the most important steps and information for eCommerce businesses to prepare and apply for a business credit card. 

Have A Plan

Before you start applying with different credit card agencies, you need to formulate a plan to determine how you will use the credit. Credit cards are different from term loans where you have a fixed payment every month. As you use the credit, the balance increases and thus, so do your payments. It is easy to get trapped in the “Just put it on the credit card” mentality, thinking you will pay off the balance later – but this is a slippery slope. We will talk more about monitoring transactions and usage later in this article. 

Here are a few questions to ask yourself when planning for a business credit card:

• What are acceptable circumstances to use a credit card?
• Who will be listed as authorized users?
• How will spending limits be enforced?

What are acceptable circumstances to use a credit card? It is important to ensure you are not using your business credit card frivolously or to make personal purchases. With every $5, $10, and $100 purchase, the balance increases and interest on those purchases increase as well. Credit cards are easier to apply for and obtain than a term loan which is why some businesses will use it for a single large purchase (equipment, inventory). Once they make their purchase, the credit card does not get used again until the purchase is paid off. 

Additionally, credit cards are used to consolidate debt; taking multiple lines of credit and moving them to one convenient loan or card with a lower interest rate in order to make one payment each month. You can still use the available credit but be mindful of the increased balance. 

Who will be listed as authorized users? Many businesses choose to add authorized users to the credit card account to allow employees access to funds in order to complete their job duties. You need to choose trustworthy individuals that will not run up the credit limit. 

Authorized users can be anyone that makes company purchases. When employees are required to use personal funds to acquire company products, they then need to turn in an itemized receipt for reimbursement. Depending on your accounting process this could take a few days or weeks to reimburse the employee. Allowing authorized users eliminates the need for reimbursement and gives you instant access to the charges via the online statements or credit card app. 

How will spending limits be enforced? Not everyone who has access to use the credit card will also have access to the statements or recent charges. Therefore, they do not know the amount of credit available. To avoid too many large purchases made by multiple users at once, you need to implement spending limits. 

Many credit cards have settings that you as the main account holder can control, including setting limits per credit card issued. You can toggle these limits for each card holder, setting a maximum daily spending amount or per-transaction limit. Anything over the preset limit requires your approval. 

Check Your Credit Score

New businesses might not have established a desirable credit score. The thing is, no one starts off with “good” or “bad” credit. Credit is based on the likelihood that you will be able to pay off debt based on your financial transaction history and any debt you have accrued (including debt your business has paid off in the past). 

Business credit scores are based on a range from 0-100 with average credit approval hanging around a score of 75. There are many credit cards that cater to lower credit scores, but keep in mind that this trade off usually comes with higher interest rates. 

Sometimes personal credit is used when a business does not have adequate credit to secure its own credit card. Since the business has no credit of its own, the lender has to know the borrower is creditworthy – meaning, they will use your credit history to determine the limit amount, interest, and fees. On average, credit card companies look for a credit score of 670 or higher for personal credit cards. 

You can get your credit report, detailing the ins and outs of your credit score from one (or both) of the major credit reporting bureaus: 

• Experian Business Credit Reports – a complete report of your credit history and score; charges and fees apply
• EquiFax Business Credit Reports – a complete report and risk assessment for your business; charges and fees apply

Free options will not always give you as detailed or accurate information as the paid credit reports, but it does give you an idea of where you stand. Dun & Bradstreet offers free credit score checks with free alerts for a limited period of time. This credit company also offers paid options available for unlimited access to detailed information, email monitoring, and how your credit score compares to other companies in the industry. 

It is important to note that your credit score fluctuates with every transaction recorded by the credit reporting bureaus. Taking on new lines of credit, making debt repayments, and failing to pay bills will result in an increase or decrease of your credit score. You need to monitor these activities, but also remember that the number is not stagnant and will require patience while you build up your credit score.

Additionally, credit monitoring allows you to locate cases of identity theft or any unauthorized credit borrowed against your business. Identifying these instances and filing investigations into these charges will actually improve your credit score once they’ve been removed from your credit report. 

Build Your Credit

You do not necessarily need to build credit prior to applying for a business credit card, but the better your credit rating, the better offers you will receive for your interest rates and credit limit. In addition to building your credit, you also have the opportunity to review your accounts and current debt. 

First you will need to open a business bank account if you have not done so already. You can monitor transactions on the business checking account to get an accurate picture of the money coming in and going out. This will tell you what your cash flow looks like in addition to where you need additional funding. Using the business checking account, you can make purchases, pay bills, and receive invoice payments. 

Set up credit and lending accounts with suppliers. When procuring your inventory, contact your suppliers or manufacturers to find out if they offer a line of credit. Simply, you borrow the inventory and make repayments based on the terms outlined in the agreement. Sometimes the lender will agree to fixed monthly payments or a system based on a percentage of your revenue each month (revenue based financing). 

The most important factor when building your credit score is to ensure all bills are paid on time and in full. Late payments reflect poorly on your credit report, making it more difficult to get better credit card terms. Taking small steps to pay off old debt benefits your credit greatly. 

Here is a tip when applying for credit cards – only apply for one at a time. The lender will request your personal and business credit reports which will cause a “hit” or a decrease in your credit score. It’s a catch 22 – you need credit to improve credit, but every time you apply it dips your score. It is important to choose to apply for a card that is right for you, but also a card where you meet the qualifications. 

If you do need to apply for multiple different cards, spread out your applications over a period of time to avoid a sudden onslaught of “hits” to your credit report. 

Watch For Interest Rates and APR

As we have mentioned – ad nauseam – interest rates are a significant factor when determining for which credit cards you want to apply. 

An interest rate is the percentage of the amount borrowed charged to the borrower. Interest rates are based on your credit score – which tells the lender how likely you are to repay the loan. While the interest rate varies between financial institutions and includes factors we have mentioned above, the average interest rate on a business credit card is 20%. 

Your goal should be to find the lowest interest rate possible, but that is not always the only factor. Credit Card A might offer you an interest rate of 11% with only a $5,000 credit limit, while Credit Card B offers an interest rate of 15% and a $100,000 credit limit. Depending on your needs, you have to factor in the amount of credit you require. 

Additionally, there is this pesky thing called APR – Annual Percentage Rate. The annual percentage rate is the percentage of the principal loan that includes all interest, costs, and fees. This number is usually higher than your monthly interest. Average APRs range from 20-30% of the principal loan. 

You want to look for credit cards that offer 0% APR, but if there are no special offers, you can avoid the APR – and the interest – by paying your credit card balance off in full each month. 

Look For Perks

During your research you will be inundated with offers advertising the benefits you will receive for signing up with XYZ credit card company. These promotions will indicate whether the offer is for new or existing customers. 

Perks come in many options. A few of the most common ones: 

• Low interest or 0% APR for a period of time – Credit card companies will use an incredibly low (sometimes even 0%) introductory rate for new clients. If you plan on paying your balance off while the introductory rate is in effect, you could pay little to no interest on your purchases. 
• Cash back – Cash back programs are designed to give you a percentage back of what you spent. So if you take advantage of the “1% cash back rewards” promotion, and you spend $100, the credit card company will give you $1 to use toward your balance or deposit into a checking account. Basically, you can get the credit card company to pay a very small percentage of your bill with every purchase. 
• Points systems – Much like cash back systems, some credit cards offer points for each dollar you spend using that card. How many points you receive and how you are able to redeem them varies between lenders, but generally you can trade in your points for goods, services, discounts, or cash. 
• Airline miles – Traveling business people benefit from airline miles rewards. Many airline credit cards give certain amounts of miles based on where you use your card. For example, you might receive one mile per dollar spent at most locations, two miles per dollar spent at restaurants, and three miles per dollar at gas stations (these are just examples, make sure you check with the lender’s terms). Regardless of how they outline their tiers, you can trade in your miles for actual airline tickets – you basically earn a free trip buying things you already need. 
• Sign up bonuses – While any limited term offer is a sign up bonus, like low interest and APR, some credit cards will offer actual cash sign on bonuses. The amount offered varies but even an extra $200 can go a long way. Airline credit cards and point system cards may offer an additional large bonus if you meet a certain balance by a particular end date (Example: Get 100,000 bonus points/miles if you spend $5,000 in 3 months). 

Perks should not be the main reason you choose a credit card. Instead, look at all of the information as a whole. What is the credit limit? What will the interest rate be after the promotional period? Will the credit limit increase as you improve your credit score? Use the temporary perks as a way to decide between credit cards that offer similar long-term benefits and choose the one that will help you grow your company in the future. 

What You Need To Apply

Applying for a business credit card requires a bit more information than personal credit cards. In order to have all of your documents and information accurate and in order, you first need to carve out some time to complete the application. Some applications can be completed in a few minutes while others may take 20-30 minutes. 

Information you need to apply for a business credit card include: 

• A Federal Tax ID or EIN
• Your business name (according to your Federal Tax ID or EIN number) 
• Months or years in business
• Annual revenue
• Your personal information and information of all business owners (legal name, social security number, address, phone number)

Some credit card companies will request additional information such as number of employees, type of industry your business is in, and how much you expect to spend using the credit card per month. 

It is not uncommon for credit card companies to ask about personal credit information as well. If your business does not have adequate credit history, the credit card company will pull your personal credit report to weigh the risk versus benefit of approving your credit. 

You need to remember that credit card applications will “hit” your business credit report (and your personal credit report too, if applicable) which will cause your credit score to dip. 

Monitor Transaction and Usage

Now that you have applied, and once you have been approved, it is time to put your plan into action. Your cards will generally arrive by mail 

Ensure you are adhering to the guidelines you put in place at the beginning of your credit card search. Once you receive a credit limit for your card, you can create a timeline of which purchases to make. Do you make all of your purchases at once and pay off the total limit, or make one purchase at a time to avoid high monthly interest and APR?

As you dole out the cards to the authorized users, be sure to outline what qualifies as approved purchases and spending limits. This may require additional plans to establish protocols for additional purchases or acquiring approval for extending spending limits. 

Monitor your transaction history and require authorized users to provide itemized receipts when available so you can keep track of spending. Your credit card company will provide a monthly statement which you can review, alongside your receipts, to find any errors or fraud. 

Fraudulent purchases (for example, a credit card is stolen and used by an unauthorized person) will add to your statement balance and you will be required to pay interest on those purchases if they are not identified. Make sure to contact your credit card company immediately to rectify the situation.