I recently changed my web design business from a sole proprietorship to an LLC. In the process of changing things over, I began pondering the best way to establish credit for the business and keep my finances separated.
Given my history with spending and credit card debt, as well as my crappy credit score, I really didn’t know if a business credit card was the right choice for me. Would I go crazy and spend hundreds of dollars on office supplies? What if my business failed and I ended up with more debt to pay off? Could I even get a business credit card with bad credit?
After a lot of internal debate, I decided to apply for a card and, if approved, just use it for all my normal business expenses. Nothing crazy; just the stuff I buy anyway. So I called Capital One to see what kind of options they had for small businesses – I have a personal credit card and a car loan with them, so I figured they might offer something that would work with my credit situation.
The rep I spoke with told me about the Spark Classic business credit card, which sounded perfect for my needs. The interest rate is high, but that’s a plus for me – it discourages me from carrying a balance. It also doesn’t require perfect credit, so the rep felt like my odds of being approved were good. The only disadvantage is that I had to personally guarantee the card, meaning I am responsible for the debt – if the business fails or goes bankrupt, I still have to pay off any balance I owe. So even though the card says Nuts and Bolts Media on it, the payments are reported on my personal credit report. (In my case that’s not a bad thing since I need all the positive reports I can get!)
Using a Business Credit Card Responsibly
Obviously I have to make sure that I only use the new business credit card for legitimate business expenses. Sure, I could go buy whatever I wanted, but I’d have to answer to my accountant at tax time! So far I’ve had no trouble controlling myself.
All my monthly business expenses (web hosting, theme and font purchases, etc.) are made using the business card. Every week, I make a payment from the new business checking account (for the record, I went with PNC because they just added remote check deposit for business), then transfer money from Paypal to replenish the bank balance. It’s a little complicated but it works well for me and keeps me from losing track of what I’m spending.
I did use the card to order some t-shirts with my logo, but not until I had money set aside to pay for them. I’m treating this credit card like a time-delayed debit card; I may have available credit (I actually got a MUCH higher credit line than on any of my personal cards) but that doesn’t mean I can use it. The income from my business still has to pay my personal bills as well as any bills the business incurs, so it’s not free money.
Also, even though I don’t plan to carry a balance on the card, having available credit means I don’t have to miss out on opportunities while I scramble to transfer money out of Paypal or make a bank deposit. If I find a product or service that can improve my business and help me in the long run, I can purchase it immediately and deal with the details later. That makes a big difference in the way I do things.
For example, awhile back I needed to purchase some graphics for one of my clients. I had just drained my Paypal balance to transfer money to my bank, and the money was in that weird limbo state where I didn’t have access to it yet. My options were (1) purchase the graphics from my personal bank account, messing up my accounting or (2) ask the client to front the money instead of invoicing it at the end of the project. NOT good options! With a business credit card, I never have to deal with those situations again.
Should You Get a Business Credit Card?
If you’re confident in your ability to use credit wisely, a business credit card can be a great way to keep your business and personal finances separated. You have a record of everything you buy for your business, plus you’re covered in the event that your information (or your card!) is stolen. I like knowing that my business bank account info is safe since I’m not using my debit card very often.
For the first time, I understand why people say they have peace of mind when it comes to using credit cards. I’ve been pretty set against them ever since I paid off my last one in 2011, but as I learn to use them the right way, I’m starting to see credit cards as a valuable tool to help my small business grow.
What do you think? Are business credit cards a good idea for people with bad credit? Any cards you’ve used that have been a great help to you and/or your business? At what point is someone reformed enough to use business credit responsibly?