How A Business Credit Card Can Take Your Small Business to the Next Level
If you're a freelancer or self-employed, chances are you've been in at least one murky financial situation — "Was that a work lunch or a personal lunch?" and "Did I forget a deduction?" were questions I found myself asking too often last tax season. If you have certain expenses that can be separated and deducted as a ‘business expense,' opting for a business credit card is an easy and efficient way to do so, while simultaneously earning rewards on your purchases. Consider some of the many ways that you could benefit from having a business credit card:
1. Managing Cash Flow
Keeping your personal and business expenses separate can increase your deductions and make your business tax returns easier to manage. It can also help you keep your tax documents in order, should you ever get audited by the IRS. [Side note: The Mogul Mom recommends Quickbooks for Small Business to help.]
2. Building Credit History for Your Business
One of the most valuable things a business credit card can do for you is to build a credit history for your small business, and do so without hurting your personal score. Although your personal credit guarantees the card (meaning if you default on payments, you're still liable), your usage of it for your business expenses won't affect your score. If your business grows and you're looking to apply for a loan for larger expenses like real estate, banks will look to your business line of credit to determine your loan rates. Therefore, the sooner you start building credit for it, the better your rate will likely be in the future.
3. Business-Specific Rewards Categories
If you get reimbursed as a freelancer for out of pocket expenses like supplies, look for cards that offer points for every dollar spent on office supply purchases. Commute for clients or entertain? There are plenty of cards that offer a ton of perks for gas and dining out. If you fly for business, you can take advantage of perks like VIP airport lounge memberships and passes, as well as hotel reward loyalty programs.
4. Higher Purchasing Power
If you're not working regular hours, or get paid at irregular intervals, a business credit card can keep you safeguarded for a month until you get a payout, minimizing the stress that can come with paying out of pocket. If you land a big client, a high line of credit can help you make the necessary investments for your business to expand quickly. The most important thing to note here, however, is that you have to exercise self-restraint and charge only what you will be getting paid for, or what you can afford to pay off. Otherwise, unfortunately with great perks come greater interest rates, and you could end up paying huge fees.
Next Steps: What You Need to Apply for a Business Credit Card
If your business is brand new, you may need to submit documentation such as your articles of incorporation or your profit/loss statements before you can get approved. On the other hand, if your business already has a line of credit, applying for a new card can be a seamless process. Either way, keep following information available when you apply:
Employer Identification Number (EIN) and Social Security Number
If you don't have an EIN, you can apply online at IRS.gov. Otherwise, if you're a sole proprietor, your SSN should suffice
Business Details
Your card issuer will need your business name, address, and how long you've been in operation. If you're a freelancer and operate out of your home, you can use your home address.
Annual Revenue
Be sure to know how much profit you made in the last year.
Bottom Line
If you're self-employed, a quality business credit card can help your business earn rewards, build credit, and keep your personal and business expenses separate, thus saving you time and money when tax season rolls around. For more strategies for maxing out rewards, as well as recommendations for which business credit cards can help take your freelancing career or small business to the next level, check out this article from The Simple Dollar.
How do you use credit to build your business? Let us know in the comments.