How to Finance a Small Business with a Credit Card

Using a business credit card is a flexible way to manage cash flow and cover short-term expenses. Learn how to:

• Choose the best business credit card for your goals and navigate different small business funding options.
• Understand the key differences between a revolving line of credit and credit card accounts for your operational needs.
• Apply for a business credit card and follow best practices to protect your revolving credit for small business growth.

The idea of relying on a credit card to help finance your business might seem risky — especially if you are a startup. However, when used responsibly, business credit cards are a great financial resource and one of the most accessible small business funding options available. 

If you are considering applying for a business credit card, it’s important to educate yourself on the benefits and best practices of using a credit card to finance a small business. 

Understanding a Revolving Line of Credit versus a Credit Card

It is important to understand the differences between a revolving line of credit and a credit card account. Both options give you revolving business credit. This means you can borrow up to a certain limit, pay it down and borrow against it again. However, the way you use them is very different.

A traditional revolving line of credit for business works like a flexible bank loan. You can transfer cash directly into your business checking account to pay for costs like payroll or building repairs. However, with a standard revolving line of credit for business, you usually pay interest from day 1 until you pay the money back. These accounts may also charge annual fees.

On the other hand, business credit card funding gives you an interest-free grace period. When you use a credit card to help finance a small business, you can easily cover short-term cash gaps and pay for daily expenses without taking out a loan. When a credit card is used responsibly and you pay the bill in full each month, you don’t have to worry about paying interest. This makes a business revolving line of credit through a card a more cost-effective tool for everyday business costs.

Quick Access to a Line of Credit

One of the biggest benefits of a business credit card is the instant access to revolving credit. You can easily use credit cards to:

• Fill Cash Gaps: Pay suppliers right away while waiting for clients to pay their invoices.
• Buy Initial Stock: Purchase inventory in bulk to get a discount before selling to customers.
• Pay for Repairs: Fix vital tools, computers or vehicles quickly without using up your cash reserves.

Credit Cards Are Available to Employees

It’s not uncommon for a business to give a limited number of employees the ability to sign checks and authorize spending. With a credit card, you can give employees access to the card to make approved purchases without requiring them to be a signer on the account. You can also set specific spending limits so employees only have access to a portion of the full line of credit.

If multiple employees have access to the company credit card, best practice is to implement a strategy to monitor usage. This helps lower the risk of embezzlement. It is a good idea to fill out expense records biweekly or monthly, so you know what expenses are going through on the card.

Business Credit Cards Save Time and Money

Using a credit card for small business funding can provide you with financial efficiencies that save time and money. For example, if you own a small fleet of vehicles, you can assign a credit card to each vehicle that can only be used at gas stations. By doing this, you will have access to an itemized statement each month for each credit card. This provides a clear picture of how each card is being used and will alert you of charges that seem out of the ordinary. Plus, modern business cards connect directly to accounting software, turning manual math into a few simple clicks.

Earning Rewards for Your Business 

Just like personal credit cards, most business credit cards offer rewards or cash back on purchases that can then be used for airline miles or hotel points. And because business credit cards tend to have larger lines of credit, the points and cash back are typically on a bigger scale.

How To Apply for a Business Credit Card

You can apply for a business credit card by following a few simple steps. First, check your personal credit score. Because a business credit card for startups is usually approved based on the owner's personal credit history, having a strong personal score is important.

Next, gather your information. You will need your official business name, your business type, your Federal Tax ID Number or your Social Security number, your annual sales numbers and an estimate of how much you will spend each month.

Third, fill out the form. Work with your commercial banker to apply for a business credit card.

Have a Small Business Funding Strategy

A business credit card can be a positive addition to your day-to-day financial plan. And, when used strategically, it can help you achieve your small business goals and build a strong credit history for your company’s future. 

Because every business has a different cash flow needs, talk with a Northwest Bank Treasury Management Representative today. They can help you find a business credit card that fits your goals and discuss the best ways to use it before making a card part of your long-term funding options for small business growth.