Business Credit Card For Startup?

Q: I have completed a business plan for a startup business, opened up an LLC for it, got a federal tax ID, and am now working day and night to get it off the ground. Where can I find a good business credit card for startup companies such as mine?

A: Congratulations on your new venture! Building a business from the ground-up is always exciting, but when it comes to getting a new credit card, there are a few things you need to know…

Apply under company credit or your own?
Obviously the ideal way to go about getting a business credit card for a startup would be to get it under the company’s credit only. Unfortunately that probably won’t be an option.

Business credit cards without a personal guarantee are only available to established companies. Typically the company must have been in business 2+ years, have profits/strong margins, and already have existing lines of credit. The bank will verify all of this very thoroughly so if you were thinking of fudging the numbers, forget it.

During the great recession, all the major credit card issuers experienced massive losses on business credit cards – sometimes as many as 1/8 of all their business accounts were defaulted on! And after being burned so badly, you really can’t blame them for changing their lending practices and discontinuing cards for startups without a personal guarantee.

What are your options now?
There are a couple different options and each has its pros and cons:

Option A: Wait until your company has fulfilled the requirements
Many startup companies simply choose to avoid credit cards altogether. They just stick with their business checking account and a debit card which is linked to it. Once they meet the requirements to apply for a business credit card under the company’s credit, they apply.

The benefit of this approach is that there will be no way of raking up credit card debt. The drawback is you may not be eligible for a credit card for up to two years or longer.

Option B: Get a card for your startup with a personal guarantee
The other route is to apply for under your personal credit. The card issuer will use that in making its decision. Of course most banks should allow you to add your start-up company’s tax ID on the application too, so your business may potentially benefit from the card’s account history.

The nice thing about this approach is that it makes a credit card for startup businesses possible. You will be able to enjoy the lucrative rewards these cards offer, as well as their added protection on your purchases. The pitfall is that if anything goes wrong, you will be held personally liable for the debt and that will be reflected on your credit report.

I went with Option B for my new LLC and am happy I did. Here is the card I used to do it…

What’s the best option for you and your start-up company? Well it’s strongly recommended you consult professionals in making your decision (i.e. accountant, business attorney, etc.). Whatever route you go, I wish you the best of luck! I used to be in your shoes, so I know what it’s like!

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This was extremely helpful advice. I am a startup that is in the exact same position as the person who asked the question above. This answered my questions regarding applying for business credit under my new LLC’s name.

Thank you!!