It can be a challenge for new business owners to be approved for even a small loan – many lenders see a young company as too high a risk. A credit card can serve as a short-term financing solution and a foot in the door with a lender, giving you a chance to build your business credit rating as you grow. Stick with the strategy and you’ll be in a better position to qualify for a proper loan before long.
Know the score
A lender will look at both your personal credit score and your business credit score (if you have one) when assessing your application. Before you apply, make sure your personal credit rating is strong – especially if you haven’t built a credit history for the business yet.
Choose the right card for your needs
The best card depends on your borrowing needs and spending habits. Most cards come with perks that appeal to different owners – some reward business travel, others offer cash back on certain spending or discounts with particular suppliers. Look at your last six months of expenses to see which perks would genuinely benefit your business, then seek out a card that aligns with your purchasing patterns.
Compare the costs
Not all cards are equal on affordability. If a card appeals for its perks but the annual fee and interest rate trigger sticker shock, decide based on value – calculate your likely return in cash back and discounts and weigh it against the costs. Talk to your adviser about annual fees and late charges, some of which may be tax deductible depending on your circumstances.
Final thoughts
Once you have a business card, never miss a payment – it’s the fastest way to rack up interest and debt. Monitor your business credit score at least twice a year to catch any errors. Many owners don’t know their business credit score, or even that they have one, so staying on top of it puts you ahead.