Pennywise
Small Business Credit Cards
by: Sahil | last updated: November 05, 2009
Category: Premium Credit Cards | Tags: Small business, small business credit cards, credit cards
Category: Premium Credit Cards | Tags: Small business, small business credit cards, credit cards
Not so long ago, it was not very difficult to get a credit card for your small business venture. However, things have changed because of factors such as the recession, the credit crunch, and the Credit cards Act 2009. It is becoming increasingly difficult to finance small businesses using credit cards which are their lifeline. Some general facts and recent developments may help you in securing a credit card for your small business enterprise.
An overview.
A small business credit card can not only be used by a large business entity, it can also be used by self employed people. These are available in almost every brand of credit card that exists in the market. Moreover, they work very much like a normal credit card and have interests, over-limit fees and such similar features found in personal cards.
Application.
Applying for a small business credit card is similar to applying for a personal credit card. There are many types of business cards available and choosing the one which has a lower interest rate and provides some rewards will yield positive results. There are cards that offer cash-back on purchases and some offer flier miles. Researching more about the different offers available in the market is advisable before opting for a card for your business.
Additional cards.
A major difference between a personal credit card and a business credit card is that you can apply for additional cards for your employees. This facility is not available if you are the owner of a personal credit card. Another point to consider is the security of additional cards and the honesty of the employees while using the same.
Secured credit cards.
These types of cards are for people who are not able to get any loans or plastic for financing their projects or businesses. A secured credit card requires you to open a bank account with the issuer and usually has a higher interest rate. This may be due to the bad credit history of the person or company that is applying for the card. The credit limit in this case is usually equal to the amount deposited with the bank.
The Credit card act of 2009.
The credit crunch has given impetus to the United States government for tightening the rules and criteria for providing credit. This act helps in preventing errors on the part of the credit card companies and demands a more transparent method of operating. Steps such as informing the credit card holder of an interest rate increase in the future within 45 days of the increase, prevention of interest rates in a retroactive manner even though the user is in good credit standing, are some of the highlights of this act. It will come into force in the year 2010.
Hurdles.
Some of the common hurdles that may be faced when applying for a business credit card include: requirement of the last two years financial history, income verification, and a very high credit score (usually more than 700). These factors have made it difficult for self employed entrepreneurs to acquire a credit card for their business needs. Many self-employed people do not have a history of their financial transaction or an accountant. This creates problems for even getting a single credit card for use for business ventures.
Approval.
According to many credit card companies, the approval process is smooth and not a very complicated one. However, many choose to disagree on this, pointing out the addendums that are supposed to be added in February 2010 to the credit card act of 2009. There is consensus among people that the law will require a truth in lending act. This will enable additional scrutiny by the issuers and the assessment of the ability of the borrower to pay existing credit before qualifying for a business line of credit. This may make the approval a more stringent affair.
Proving your worth.
Proving your worth to the credit card issuer becomes imperative in light of the stringent steps advocated by the government. There are some ways of increasing your worth in the eyes of the credit card company. One simple step is to open a savings account with the lender. This assures the company of the honesty of the borrower and increases confidence. If you already have an account with a bank or a financial institution then there is a greater chance of approval if you apply for the card with that bank or institution.
Documents and collateral.
The documents that may be required for approval and can come in handy are the financial statements. These may comprise of your tax-returns, profit & loss statement, the balance sheets, and other bank statements. Collateral is usually required and is mandatory for qualifying so any documents relating to personal property, vehicles or real estate may be necessary. Having some collateral to pledge will surely perk up the chances of a positive outcome.
Some reliable companies.
Some of the companies that provide business credit cards are Visa, MasterCard, Discover, Advanta Corp., OfficeMax (Acquired by HSBC), and AmericanExpress. All these have credit cards that can be used for business purposes. If you already have a personal credit card belonging to any of these companies then a simple phone call may be required to convert your personal card into a business credit card. However, other factors such as your credit rating, credit history, and the policies of the credit card company may influence the approval process.
Recent developments.
Due to tightening of credits and bringing down of credit limits, companies such as Advanta Corp., and OfficeMax have simply canceled their credit cards in the recent past. This step was the result of losses suffered due to record number of uncollectible finances. The shrinkage of credit offers and credit limits with increasing interest rates for small business cards is a trend that seems to be here to stay. The reason being the latest Credit Card act of 2009 and the recession. Many small business credit card companies are going out of business; however bigger companies such as Discover and AmericanExpress continue to thrive and offer lower interest rates compared to other smaller lenders.
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