How To Qualify & Apply for Business Credit Card in 2021

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Getting credit established for your business is a tricky proposition. In fact, many people don’t even realize that a business can have its own credit profile separate from the owner.

But an actual legal entity like a corporation or LLC can absolutely establish its own separate credit profile. After all, the entire purpose of incorporating is to separate the business owners from the company itself.

To take advantage of this option, the business will need a Tax ID Number (EIN). The IRS issues this identification number for companies.

The EIN serves as an alternative to using your Social Security Number (SSN) when applying for loans and accounts in general. In fact, you can think of the EIN as the social security number for the business only.

Like normal credit profiles, business credit must be carefully established and built up to qualify for credit. The positive thing is that a good business credit profile can help your company qualify for loans at lower rates than most consumers. Thus, you must establish and build up a solid business credit profile as soon as possible.

But before we even get into how to actually apply for various types of business credit, let’s first go over some initial qualifications you’ll need for a business to establish credit:

How To Prequalify For Business Credit

An EIN-based small business credit card is issued purely in the company’s name and is unrelated to the owner’s credit history. These credit cards give small businesses a credit limit based on their Paydex score rather than the FICO score used to determine individual creditworthiness.

Paydex is a company credit score developed by Dun & Bradstreet that assesses the likelihood of making payments on time to customers and suppliers. The scale runs from 0 to 100, with higher scores suggesting a greater penchant for paying on time or ahead of schedule.

This scoring system sets Paydex apart from a typical individual FICO score, which has a maximum score of 850.

A Paydex rating of 80 or more puts your company in a good risk category, suggesting that your payment history indicates a low likelihood of late payments.

Dun & Bradstreet is one of the major business credit reporting bureaus, alongside Equifax and Experian.

What Criteria Must A Company Meet To Be Approved For A Small Business Credit Card?

As previously stated, the Paydex score is the most crucial factor in establishing solo business creditworthiness. This means your business must be registered with Dun & Bradstreet and have a current D-U-N-S number.

If your firm has many locations, each one may be assigned a D-U-N-S number; nevertheless, your credit score should be assigned to the number assigned to your main office.

Even if your company has multiple offices that deal with suppliers individually, you should use the main D-U-N-S number with suppliers that may be reporting business transactions for credit rating purposes.

Because a credit rating is used to determine a company’s financial ability to pay, the information must be appropriately ascribed to the entire organization.

It’s worth mentioning that many firms have complained that the Dun & Bradstreet signup process is complicated. As a result, companies that assist small businesses with the D&B enrollment process, as well as the overall business credit building process, have sprung up.

Because the process of establishing business credit is so time-consuming, it’s a good idea to hire a company that can guide you through it from beginning to end.

Who Can Apply For A Business Credit Card?

Any business owner with an established company can theoretically apply for a business credit card. However, often the best fit for a business card is a firm that:

  • Has been established for at least one year.
  • Maintains an established relationship with suppliers and customers. This means having invoices and sales contracts in place. Account’s receivables and payables are also important factors to establish before applying for credit card approval
  • Has had a history of paying suppliers on time. Having one or two large purchases or investments paid from cash reserves is not sufficient reason to be approved for business credit; you must have a track record of consistent, timely payments. Only then will banks trust your company enough to extend lines of credit further down the road – like, say, loans or mortgages as your business matures over time.

When To Apply For A Business Credit Card

If you meet all three criteria above, it’s a good idea to search for small business credit cards now – even if your firm is still in its infancy stage.

Since most bureaus review new accounts every six months, applying on time will help ensure that your company does not miss out on future opportunities due to late or inaccurate information. This is particularly true during periods of growth when cash flows are tight.

Having a line of credit can provide a sense of comfort and confidence as you take on larger clients and projects without worrying about having enough funds on hand at any given time.

Once you have been approved for your business credit card, it’s essential to keep the account open and active. Work hard to pay off your balance in full every month, and strive to build a positive Paydex rating as well.

This will significantly improve your company’s ability to qualify for new lines of business credit in the future.

When Not To Apply For A Business Credit Card

If you have been operating with cash-only or paying suppliers by check, don’t bother applying for a small business credit card until you have established good payment history.

This is where many companies make mistakes by leaping too soon into the unproven territory; they aren’t eligible yet for an unsecured line of credit and get rejected because their overall financial standing is too weak to be accepted.

If you don’t make the cut, remember that your payment history will only get better from here on out with continued good business practices.

It’s also a bad idea to apply for business credit during times of financial duress; there may be better options available than applying for new lines of credit that will extend your loan line.

Although you may get approved, many banks have been reluctant to provide further credit to those companies that are already over-extended.

Skip the temptation and look for alternate financing methods instead, like unsecured loans (also known as “business loans,” “commercial loans,” etc.) from traditional lending institutions or equity investors.

As long as all of the above criteria are met, any company with an established positive payment record should be able to qualify for a business credit card.

As more vendors begin reporting your payment history to the D&B database, it will be increasingly easier for companies to gain access to business credit cards over time.

How To Get Business Credit Card Approval

Once you have decided to apply for a business credit card, the next step is to determine which lender will be best suited for your company.

Practically all banks that offer small business lines of credit will provide pre-qualification information once you complete their online application form – even if they don’t approve applications on the spot.

Although this information does not guarantee approval, it helps determine how much each bank is willing to lend and the interest rate based on your projected cash flows.

There are usually two distinct paths by which most businesses gain access to loans, either through sole proprietorships or corporations and limited liability companies (LLCs).

Business owners who operate under sole proprietorship must ensure that their credit score meets minimum lending requirements, as most banks require a credit score of 680 or above.

This is because their business acts as an extension of the owner’s personal assets; therefore, they must demonstrate an ability to repay the loan based on their own past performance rather than that of their enterprise.

In addition, applying for a business credit card with a high credit score makes it easier to qualify in case your sole proprietorship should ever be sold or transferred to another party.

On the other hand, corporations and LLCs generally have more leeway when qualifying for business credit lines due to their separation from the owners’ personal liabilities.

Owners set up these structures by creating separate legal entities and then dividing ownership into units, much like shares of stock – this encourages investors (or silent partners) who want to receive a percentage of the profits without the responsibility of management.

It’s worth noting that although LLCs are separate entities with their own tax ID number and bank accounts, they simply act as pass-through companies that make it easier to maintain personal liability protection.

Get Professional Guidance

Because the process of establishing business credit and applying for business credit cards differs so drastically from individual creditworthiness, it may be a good idea to get professional help from someone who knows the ins and outs of business credit.

Using our Business Credit Building Service is the most effective way to build business credit and obtain small business credit cards. We can assist you in setting up your Dun & Bradstreet and Paydex accounts, establishing favorable business tradelines, and securing business credit card approval.

To get started with this program, all you need to do is fill out our application and make a simple phone call. Click here to get started today.

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