How to Apply for a Business Credit Card If You Have Bad Credit

In this article:

• How business credit cards work
• Benefits of a business credit card
• Best business credit cards for bad credit
• Other ways to finance your small business

Business credit cards are a great financial tool for small business owners. Responsible credit card activity can help entrepreneurs finance business needs and build better business credit history. Some credit cards even offer rewards and perks, like cash back and travel discounts. However, if you have a bad personal credit score, or poor or no business credit, finding the right card can be tricky.  In this article, we explore business credit cards for entrepreneurs with less-than-perfect credit.

How business credit cards work

Business credit cards are a type of revolving credit. When a borrower is approved for a business credit card, they are approved by the issuing bank or lender for a maximum credit limit. Cardholders can then use the card to make purchases or withdraw cash as long as the total balance does not exceed the assigned credit limit. A monthly statement is issued, either by mail or electronically, which shows the card balance, finance charges, and amount of the minimum monthly payment due. To remain in good standing with the credit card company, each monthly payment must at least cover the minimum payment.

Small business credit cards do not work any differently than personal credit cards, but card activity on a business credit card does not affect your personal credit score, available credit, or individual debt. Since the credit is revolving, once a balance is paid down the borrower is free to use the card again. Credit lines with business credit card companies typically remain open until the borrower cancels the card or defaults on the payment agreement.

Credit card terms you should know

Before you begin shopping for the right business credit card, make sure you understand the following terms. You are likely to come across many of these terms during the application process or while reviewing the financial documents accompanying your new credit card.

• Annual fee – flat fee, usually between $25 and $500, charged to the cardholder once every 12 months as a service charge to have the credit card account
• Annual percentage rate (APR) – the numerical amount paid by a small business on a yearly basis for the privilege of borrowing money and keeping the credit line open
• Balance transfer – occurs when the borrower transfers debt from another credit card, small business financing options, or personal loans to a newer credit card
• Fraud liability – or zero fraud liability is a policy credit card issuers offer to consumers as a safety measure against theft or lost card transactions
• Grace period – the amount of time following a purchase before the interest charges will apply, must be at least 21 days according to the Credit CARD Act of 2009
• Interest rates – a type of fee, expressed as a percentage of the balance, charged to the borrower monthly
• Late fee – if the minimum payment requirement is not met by the due date a late payments fee will be charged according to the terms listed in the card agreement
• Security code – also called the card verification value (CVV), a 3-4 digit number that appears on your credit card as additional security

Benefits of a business credit card

Getting a business credit card is a big step towards becoming a financially responsible entrepreneur. Aside from increasing the purchasing power of consumers, there are other benefits to opening a credit card account.

Separate business finances from personal finances

It is possible to use personal credit cards to cover business expenses, but this is not a great idea. Doing so complicates bookkeeping, causes inaccurate financial reports, and creates a personal liability that must be repaid whether the business can afford it or not. Applying for and getting approved for a business credit card is a great way to make sure you are keeping your business finances separate from your personal finances.

Improve business creditworthiness

Having an open credit line, like a business credit card, is a great way to build better business credit and improve your company’s creditworthiness. Major credit card companies, like Bank of America, and some credit issuing retailers report credit card activity to credit bureaus, so paying off the card balance each month in full or making a payment that is greater than the required minimum payment will increase your business credit score and be reflected positively on your credit report.

Make business purchases

Having a business credit card with available credit means the small business owner will never have to pass on a great deal or wait until more revenues come in to make that large purchase. Entrepreneurs can use business credit cards to pay utility bills, purchase inventory, launch a marketing campaign, order computer hardware and software, and subscribe to business services.

Best business credit cards for entrepreneurs with bad credit

Applicants without established business credit history or bad personal credit history can still qualify for a business credit card, although they may not receive the same perks or sign-up bonus offers as those with better credit. If you are concerned about qualifying for a business credit card because you have bad credit or are a new business owner in your first year of operations, consider taking the following steps to find the right business charge card for your needs.

Check your credit

When applying for a business credit card, you will need to rely on your business credit score. For startup business owners and those with no business credit, the credit card company will also check your personal credit score, or consumer credit report. Before choosing a business credit card to apply for, it’s a great idea to check your business credit report and your personal credit report.

Business credit scores range from 0 to 100. Higher scores indicate good financial health. Business credit scores at or above 80 are considered good or excellent credit. Business credit scores between 65 and 79 are considered fair credit, and below 64 is considered bad credit by most lenders and financial institutions. To check your business credit, order a copy of your business’s credit report at Experian Small Business.

Personal credit scores, also called FICO scores, range from 350 to 850. Credit bureaus, lenders, underwriters, and banks typically follow a guideline like this example from Equifax:

• 800-850 – Excellent credit
• 740-799 – Very good
• 670-739 – Good credit
• 580-669 – Fair credit
• 300-579 – Poor credit

You can order one free copy of your credit report each year at AnnualCreditReport.com, by providing some basic information, like your Social Security Number (SSN).

Research eligibility requirements

Once you have a better understanding of where your credit scores rank, you will be better equipped to sort through credit card offers by reviewing the additional eligibility requirements. Some of the things credit card providers look for when reviewing applications include:

• Personal credit score – retrieved from your personal credit report, may be used in addition or as a substitute for business credit scores
• Business credit history – appears on your business credit report and details payment history, open credit lines, and legal proceedings the business is involved in
• Annual revenue – the business’s earnings over a period of 12 months, documented on financial statements and federal income tax returns
• Cash Flow – the movement of money into and out of the business from revenues, expenses, and other financial transactions, shown on financial statements
• Employer identification number (EIN) – to take out a credit card in a business’s name, credit card issuers require that the business be registered and have obtained an EIN from the IRS.
• Time in business – some card providers may require at least 2 years of operations, shown by a business bank account, to issue a business credit card

Consider these card options for bad credit

If your credit scores are below the range considered good or excellent, it does not mean you will not be able to get a business credit card. Some business owners are surprised to learn they can qualify for a business credit card that offers perks, like cash back rewards, discounts, low intro APRs, and membership rewards. Check out the following options for borrowers with bad credit.

Unsecured business credit cards

An unsecured credit card does not require any collateral, personal guarantee, or down payment to open the credit line. Some credit card companies issue business credit cards to small business owners with low or unestablished credit scores. Opening an unsecured credit card account with bad to fair credit may mean a lower credit limit or higher interest rates, but limits can be increased if payment history is excellent for an extended time period.

• Capital One Spark Classic for Business – A great card for businesses unable to qualify for lower interest credit cards, the Spark Classic card even comes with a rewards program that offers 1% cash back and no-fee employee cards. The Spark Classic card also waives the annual fee for approved borrowers.
• Divvy Smart Credit Card for Business – This card offers good approval odds for entrepreneurs with limited credit history. The card does not charge any interest but requires payment in full for purchases when the statement is issued. There is no annual fee and a foreign transaction fee of 1%. Perks for the Divvy Smart card include up to 7% reward points.

Secured business credit cards

Secured credit cards are a great option for small business owners to build business credit. These cards require an initial deposit, which typically equals the credit limit. Once you’ve built up several billing cycles of on-time payments, you’ll receive that deposit back and the card can function as normal.

• Wells Fargo Business Secured Credit Card – A secured card offering great perks including, 1.5% cash back on qualifying purchases and bonus rewards points for every transaction when at least $1,000 is charged during the monthly cycle. Eligible applicants must have a Wells Fargo business checking or savings account.
• OpenSky Secured Visa Credit Card ­– A great card for entrepreneurs with poor credit history or those that have filed bankruptcy because the approval process doesn’t require a credit check. This card offers a low annual fee of $35, lower interest rates than other secured cards, and requires a security deposit of $200 to $3,000.
• Central Bank Secured Credit Mastercard – requires a $500 security deposit into a savings account to open a Mastercard with ID theft protection, airport concierge services, and worldwide 24/7 customer service

Other business financing options

Business credit cards are a great financing option for entrepreneurs, but they are not the only way to achieve your goal of growing a successful business. If credit cards are not an option for your finances or credit situation, consider working with a lending expert at Biz2Credit to explore other financing options. You may be able to apply now for one of the following small business funding programs:

• Short-term business loan – Term loans are a traditional type of financing where the borrower receives a lump sum of money upfront and repays the loan with monthly payments of principal and interest. Short-term loans typically have repayment terms of 36 months or less and are offered as both secured loans and unsecured loans.
• Business line of credit – A business line of credit is another type of revolving credit where the borrower is approved for a maximum credit line. The borrower can then draw on the line anytime they need business funds. Lines of credit have higher interest rates than other financing programs but are a great option for entrepreneurs looking to increase their business credit score. Business lines of credit offer fast funding for approved business owners, like this manufacturing company that was able to secure a $300,000 credit line in just 15 days.

Final thoughts

Business credit cards are a type of revolving credit that work just like personal credit cards, but with no impact to your personal finances. They allow entrepreneurs to purchase what they need for their business, build better credit history, and keep business expenses separate from personal expenses. Even small business owners with bad credit can qualify for a business credit card when choosing a card provider that has flexible approval requirements or offers a secured credit card option. To get started with your business credit card, check your credit, research card benefits and requirements, and complete a fast online application. Credit decisions are often delivered instantly. If you have applied for a business credit card and are not able to get approved, consider a line of credit or other financing option through Biz2Credit.

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