Small businesses are the lifeblood of the American economy, but it's tricky to start one and even trickier to figure out all the little details and nuances that can make the difference between a thriving business and a struggling one. One of those is the small business credit card.
The big question is really timing of when to apply for a small business card.
The short answer is, and the government agrees, "as soon as possible." As soon as you incorporate your business and get started, you should look for a small business credit card.
There are three reasons why:
Reason #1: Legal Protection
Your small business, legally speaking, is a separate entity from you personally. It has its own creditworthiness. However, using your personal cards to support your business is risky both financially and legally.
Financially speaking, how are you going to get paid back? Is your small business going to pay you directly, as if you were a debtor? Is it going to come out of your salary? Are you going to make a gift to your company? All of these have a wide variety of financial and tax implications, and the last thing you need is a more complicated tax form come April.
It also puts your personal assets at risk; your company and your private assets are closely linked. If you get sued for some reason, a case can be made that your business is not separate from your personal assets. Imagine a suit where it's not just your business at stake, but also your house and your savings account!
A small business credit card protects you, because you're spending your company's money, not yours, and thus those assets are off the table in any litigation.
Reason #2: Your Financial Health
If you get a small business credit card, and use it responsibly, it both establishes you as a responsible businessman, and establishes your business as a good credit risk. That's important for more than just getting a higher limit on your card: it means that banks are more likely to give you good terms on a mortgage, that merchants are more likely to extend you better terms on a line of credit, and all sorts of other things that will help your business.
Remember, your business is separate from you personally: you need to build its credit history as carefully as you built your own.
Reason #3: Bookkeeping
Most small business credit cards break out your purchases by specific categories, such as office supplies. This is useful for figuring out where your money's going and which expenses you can cut down or eliminate. Also, when tax time comes around, you'll be able to easily spot deductions that you might otherwise miss.
In the end, credit is a useful tool for your business, apply for a small business credit card and use it responsibly. It's one of the best things you can do to grow your business.
