Business

Should you get a corporate credit card?

Whether your employees fly a lot and need a card to reserve plane tickets or they purchase lumber or office supplies for the company at the store, getting them a company credit card is often a great way to keep track of expenses and make it easy for them to purchase what’s needed.

For many entrepreneurs, a small business credit card is the best solution. Many are designed to reward the types of purchases that employees typically make in a small firm.

However, for larger small businesses, getting a corporate credit card, like the ones big corporations issue to employees, often makes sense.

See related: How to get a business credit card

What is a corporate credit card?

Corporate cards are generally available only to larger small businesses, meaning those with at least several million dollars in annual revenue. A company may have to submit a federal tax ID and undergo an audit of its financials to qualify.

For example, the One Card from Capital One requires its users to have a minimum annual card spend over $1 million. Cards are issued to the company itself (rather than any individual) and require that you submit your tax ID and require an audit of company financials before approval.

Similarly, the One Card from J.P. Morgan is available to businesses that spend between $1 million and $9.9 million per year. The bank can also match companies that spend $20 million or more on travel with corporate credit cards.

Once an account has been opened, the company is responsible for paying the balance in full each billing cycle and managing spending of each cardholder. However, it is also the company that reaps any rewards the card may include, including statement credits or travel perks. In the case of the One Card from Capital One, businesses earn competitive rewards up to 1.5X net purchases.

Corporate credit card pros and cons

The biggest perk attached to corporate cards is the ease of tracking employee spending. Rather than having employees make personal charges and submit expense reports or receipts for reimbursement, the company can easily manage spend limits, track budget needs and manage fraud risk. Most corporate cards offer detailed analytics all in one system about where and how company money is being spent.

Since these cards are sometimes more complex, corporate cards often come with their own designated customer service representative who can help resolve any issues quickly. These representatives are usually on-call 24/7 and have an intricate knowledge of each company’s individual needs.

Pros

  • Simplified tracking and analysis of work-related purchases
  • Benefits and rewards help the company directly
  • Dedicated or on-call customer service representative
  • Prevents employees from trying to make personal charges on a company card with clearer visibility and better spending controls than most business cards

Cons

  • Additional cardholder fees can add up quickly
  • Not an option for smaller companies
  • Tough application process
  • Employees can’t earn their own rewards by using a personal card and getting reimbursed

See related: Managing employee cards on your credit card account

How corporate cards differ from small business credit cards

Both corporate and small business cards offer conveniences such as the ability to set limits on employees’ spending and to restrict spending to certain categories. Most also offer features that make it possible to track expenses easily.

However, corporate cards come with certain benefits that small business cards don’t offer – and vice versa.

Availability

Unlike corporate credit cards, business cards are available to any-sized business – even entrepreneurs just getting started on their own. The application process is much less intensive and usually doesn’t require an audit of company finances.

Responsibility for the debt

Business cards are issued to an individual and the company (unless it is a sole proprietor), and even if additional cards are added for employees, the business owner is responsible for managing payments.

Typically, a small business owner must personally guarantee a small business card, though some small business cards come with joint and several liability, where the owner shares liability with the business. With joint and several liability, a creditor can pursue either the business or the owner for a debt.

With most corporate cards, the company is generally liable for the debt on employees’ cards, which is a big advantage in many owners’ eyes. When the company guarantees the debt, the owner is not held responsible if, for instance, the company fails without paying its bills.

Some corporate cards also offer what’s known as individual liability. That means the employee must stay current on paying the bill in the short term and request reimbursement upon filing an expense report. This is less common than it used to be. It’s not necessarily ideal for employees, who may not have the cash available to pay for large charges until their expense report is processed.

Credit CARD Act doesn’t apply to business or corporate accounts. But many card issuers grant those CARD Act protections anyway, as a matter of practice. Nevertheless, don’t take anything for granted. Before using your corporate or business card, familiarize yourself with its rules.

Credit impact

While corporate cards are typically used for work-related travel and accommodation, business cards can be used to make all sorts of work purchases, including supplies or merchandise. This allows even small businesses to build a great credit profile. By using a business card to make larger payments, business owners can avoid racking up charges on their personal credit cards while steadily building their business credit.

With small business cards, employees are considered authorized users. As a result, their card activity may be reported to credit bureaus.

For some employees, this is a drawback. For instance, if they have put expenses from a costly business trip on their card, they may find their credit utilization is high enough to affect their personal credit. That could be a problem if, for instance, they are applying for a mortgage.

In contrast, with a corporate card, card usage does not affect employees’ personal credit. That is a big plus from an employee’s point of view.

See related: Should I wait until my business is more established to get a credit card?

Cost

Small business credit cards tend to have fewer fees, including no additional charge for employee cards with cards such as Capital One Spark Cash for Business the Ink Business Unlimited® Credit Card from Chase.

Corporate cards generally charge for this and may charge as much as $100 a year or more. This is because they often offer more robust features, like access to a specific sales rep or access to enterprise software for filing expense reports.

Of course, if you run a larger small business, the extra benefits may be worth it. It all depends on the needs of your business.

Should you get a corporate card for your business?

While corporate cards offer a wide range of great benefits such as easy expense tracking, dedicated customer service representatives and no liability for individual employees, they are typically only available to large corporations with millions in annual revenue.

If you own a small business, a business credit card can help steadily build a credit history for your company. Business cards can also help you make large purchases to pay off over time.

Source: creditcards.com

Do Personal Guarantees Affect Credit Scores?

A group of coworkers sit around a table with their laptops open.

Whether you’re a solopreneur launching a start-up or a small-business owner seeking to grow your company, you might need extra funding. And if you’re looking for business loan, you might need a personal guarantee. Does a personal guarantee impact your credit and your own financial situation? Find out below.

What Does a Personal Guarantee Mean?

A personal guarantee means you personally promise that a debt will be paid back. If you sign a personal guarantee on a business loan, you are responsible for paying back the money if the business is unable to do so. The lender can try to collect the money from you, including by suing you.

Why Would a Lender Require a Personal Guarantee?

Personal guarantees are all about reducing risk for the lender. If you sign one, it has two potential entities to chase to collect the loan. First, the lender will attempt to collect from the business itself. If the business doesn’t make payments as agreed or defaults on the loan, the lender will try to collect from you personally.

The benefits to the lender are pretty big. They’re much more likely to eventually recoup their investment, even if your business fails. That means many, though not all, small-business loan options do come with a personal guarantee requirement.

Some factors that can increase the chance that a lender might ask for a personal guarantee include:

  • You’re a solopreneur or very small business. In this case, the business’s reputation and credit is likely very tied to your own.
  • Your business is new and doesn’t yet have a solid credit history of its own. The lender can’t decide if the business is a good risk, but it can decide if you’re a good risk.
  • Your business doesn’t have enough income or collateral. If you’re trying to borrow money to grow your business, it might not make enough money for the lender to seriously consider shelling out funds. But if you’re confident in the growth plan and know money will come in once you implement it, you might put up your own collateral to secure the loan.

How Does a Personal Guarantee Affect Your Credit Score?

Whether or not a personal guarantee affects your credit score depends on the situation. First, business loans may or may not be reported on your credit history.

If you sign as a personal guarantor for a traditional business loan, the loan itself will be reported on your business’s credit report. Timely payments on that loan will help build your business’s credit history. Missing a payment could cause the business credit score to take a hit.

In these cases, your personal credit isn’t likely to be impacted. However, if the business defaults on the loan and the lender comes to you for payment, your credit history could start to take a hit. If you immediately make a payment to catch up the loan, you may not see any impact to your personal credit. If, however, you don’t pay and the account goes to collections, that’s likely to show up on both your personal and business credit histories.

Other types of business funding, including some small-business lines of credit and credit cards, do get reported on your personal credit. This can be a good thing if payments are made timely and as agreed, as you could get a bump on that for your own credit score. In the meantime, however, it does potentially impact your credit utilization ratio and your debt-to-income ratio.

Should You Sign a Personal Guarantee for a Business Loan?

This is a personal decision that depends on a variety of factors, including your confidence in the business. But here are a few questions to ask yourself before you take this action, which can have long-lasting consequences on your own personal finances.

  • Do you really need to guarantee the loan? Your business doesn’t need perfect credit to get a loan, and there are many financing options available. Make sure you explore all your resources and understand what they’ll cost you and your business before you decide on one.
  • Are you confident the business will be able to handle the debt? If the business is stable and you know it will be able to cover the debt, you have less risk in signing a personal guarantee.
  • Are you in control of how the business handles finances? If it’s your business and you’re the one who signs the checks, you can make sure the bills are paid on time. If someone else is handling the accounting, you may want to be wary about signing a personal guarantee.
  • Can you afford to take the hit if the business fails? There’s no such thing as a sure deal, and you can’t assume the business will 100% make it. That means you need to be able to make good on the debt yourself in a worst-case scenario without giving up your personal financial stability.

The Bottom Line

Ready to get that business loan? If you’ve thought it out—and analyzed your personal financial situation—start shopping for options today. If you’re wondering where to start, check out the business loans at Credit.com. You can compare rates and requirements, so you can find the right business loan for your needs. 

Find the right business loan for you today!

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Source: credit.com