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What is a startup card? A startup card provides emerging businesses with a tailored financial solution that combines credit flexibility, rewards for common business expenses, and credit building capabilities.
In this guide, we’ll explore the mechanics of startup cards, assess their unique benefits, and outline how they compare to traditional business credit cards—all to help you determine if they’re a fit for your startup’s needs.
With a startup card in your wallet, you no longer have to worry about immediate cash for necessary purchases like equipment and office supplies. They serve as a centralized method for employees to handle business-related combined purchases and work-related travel costs, streamlining your expenditures.
Not only do startup cards handle your expenses, but they also come packed with rewards programs. Picture this: every time you buy office supplies or pay for a business trip, you collect points, miles, or cash back, which can be redeemed for flights, hotel stays, or other expenses.
Startup cards also ensure you are protected as you embark on your business journey. With features like travel and purchase protections, you can benefit from services like trip cancellation insurance, extended warranty protection, and phone services.
What’s more, a startup card can aid in managing cash flow for your business. This means you can spread out large expenses over time or bridge gaps while waiting for customer payments. Plus, responsible usage of these cards can help establish and maintain a credit score for your business, which is crucial for future borrowing needs.
Startup cards are specially designed with flexible credit features to match the dynamic financial needs of new businesses. Providers like Ramp, for instance, do not always require a personal guarantee and often feature high spending limits, making it easier for startups to manage their finances.
But that’s not all. The rewards and cashback programs of these cards are tailored for common startup expenses. This means every dollar you spend supports your business growth. Ramp, for example, offers a universal benefit of 1.5% cash back on all purchases, helping startups earn rewards on every expense.
One of the standout features of startup cards is the absence of an annual fee. This offers new businesses cost-effective access to credit, a valuable asset in the early stages of business growth.
But their benefits don’t stop there. Startup cards come equipped with innovative features, such as integrated expense management tools, specially designed to meet the dynamic needs of new businesses. Plus, they often come with valuable business benefits like extended warranties for business-related purchases.
For businesses with international dealings, many startup cards also offer additional perks such as no foreign transaction fees, saving you from unnecessary expenses on your international transactions.
Rewards are an integral part of startup cards. Many offer 1% cash back on all purchases or even 2X Membership Rewards points up to $50,000 per year. Some startup cards take it a step further by offering more straightforward reward systems with a flat rate of cash back on all purchases.
Certain startup cards provide bonus rewards for expenses in specific categories. Just imagine earning 4X Membership Rewards points in your two most spent categories, or tailored rewards for spending on flights, hotels, advertising, and shipping. With the opportunity to annual fee redeem rewards, these cards offer even more value to cardholders.
Top business cards offer a variety of rewards including cash back, miles, or points, catering to diverse business expenditure patterns and needs. With such a varied rewards system, there’s always a startup card that’s a perfect fit for your business.
Startup cards play a crucial role in providing short-term funding and building a business credit history for new businesses. Since startup card activities are typically reported to major credit bureaus, they allow businesses to establish creditworthiness.
Apart from building credit, these cards can meet immediate short-term funding needs, helping businesses to cover startup costs and cash-flow shortages, while also providing business credit access.
Plus, when you make timely payments of your startup card balances, you not only foster credit score improvement but also mitigate the cost implications of high-interest rates.
So, how can you get your hands on a startup card? Startup cards like those from Ramp evaluate a company’s eligibility based on its current financial status, including cash balance and cash flow, rather than solely on traditional credit metrics.
When applying for a startup card, you need to provide information about your business. This includes:
Apart from business information, you must also supply personal details like:
What makes startup cards a great choice for new businesses is their more flexible qualification criteria tailored to newly established companies. This is in comparison to traditional business credit cards that require a stronger financial history.
When compared with traditional business credit cards, startup cards have their own unique set of features and benefits. Traditional business credit cards, like the Ink Business Cash Card and Ink Business Preferred, may offer extensive rewards for travel and business-related expenses. They also come with perks like no foreign transaction fees and insurance coverage.
However, traditional business credit cards may have higher annual percentage rates (APRs) than some other financing options. This means that the costs for carrying a balance could be greater when compared to other types of credit.
It’s also worth noting that when a business credit card is opened with a business’s EIN instead of an individual’s SSN, it often does not impact the personal credit score of the individual. This is a consideration that can differ from startup card usage.
Applying for a startup card typically requires a hard credit inquiry. This can result in a small, temporary decline in the applicant’s personal credit score. Startup cards often require a personal guarantee, making the individual liable for the debt. This links the startup card to their personal credit history.
While business credit card usage is primarily reported to commercial credit bureaus, negative payment history like late payments or delinquency may also be reported to consumer credit bureaus. This could potentially affect your personal credit score.
Moreover, if you are an authorized user on a startup card, you could experience changes to your personal credit score. This would depend on the primary cardholder’s card usage and repayment behaviors.
For a new business, every dollar counts. So, it’s crucial that you adopt proper financial habits and maintain spending oversight. This can significantly enhance cash flow management using startup cards. To minimize personal financial risk, startups can strategically opt for startup cards that do not require personal guarantees.
Startup cards can also serve as an avenue for investment in growth opportunities. They enable businesses to make purchases now and defer payments, along with enjoying other benefits like travel perks. Understanding your financial runway is critical. Therefore, startups should strategically set aside reserves, such as a minimum of three months’ payroll, to ensure stability while managing cash flow through startup cards.
Startup cards like Ramp offer AI-powered expense management and seamless accounting integration with software such as QuickBooks and NetSuite, making bookkeeping a breeze. Some business accounts even provide options for high-yield investments with same-day liquidity. This allows startups to optimize their financial resources. Certain financial platforms also grant FDIC-insured cash diversification across partner banks. This creates an opportunity for startups to exceed traditional coverage limits.
Startup cards can also facilitate the issuance of free employee cards. This assists businesses in managing and separating personal and professional expenses, further simplifying financial management. And let’s not forget the account opening bonuses such as cash incentives or points rewards that are commonly offered to new startup cardholders. They can be a substantial financial perk.
Fees and interest rates are an inevitable part of credit cards. Some startup cards, like The Business Platinum Card, come with a hefty annual fee of $695. However, others like Ramp offer the advantage of no annual fees, late fees, or foreign transaction fees.
If you’re considering a balance transfer, keep in mind that fees on small business credit cards typically cost either $5 or 5% of the amount of each transfer, whichever is greater.
To avoid incurring interest charges and to preserve the full value of earned rewards, it’s recommended to pay off the balance in full every month on a small business credit card.
And here’s some good news for tax season - interest and fees on business credit cards are tax-deductible expenses when the card is used solely for business purposes. But remember, failing to pay off the balance in full can result in a 2.99% late fee, compounding the cost associated with carrying a balance.
Obtaining a separate credit card for business transactions is vital for bookkeeping and streamlined financial management. Daily maintenance of organized financial records helps startups stick to financial plans and readies them for investor reviews. This is where startup card integration with a business bank account can be a game-changer.
Integration of startup cards with business checking accounts facilitates effortless deposits through methods like ACH, check, or wire, contributing to more efficient financial organization. Platforms offering a central financial control center enable the consolidation of business and external accounts with startup card spending data. This ensures more effective financial oversight. Plus, automated bill pay features linked with a startup card can expedite vendor payments, thus improving the efficiency of the overall financial management system.
Not everyone has a perfect credit score. But that shouldn’t stop you from securing a startup card. Improving your credit becomes essential for securing a startup card. Key actions include ensuring timely bill payments, managing existing credit card balances, and avoiding excessive loan applications to rectify your credit history.
Secured business credit cards, which require a deposit that serves as collateral, represent an option for business owners with poor credit to obtain a startup card and begin building business credit. Issuers might approve applications for startup cards from individuals with lower credit scores after thorough research into their specific requirements. When applying for startup cards with less favorable credit, it is vital to know your credit score and have all pertinent personal and business information readily available for the application process.
Having a business partner with an excellent credit history can improve the probability of securing a startup card because their stable financial background can positively impact lenders’ decisions. Similarly, securing a guarantor with strong credit and personal assets to back the startup card application can increase approval chances as lenders may consider the guarantor’s credit standing in their evaluation.
Remember, a formal business entity or a history of business revenue is not strictly necessary for a startup card application. Revenue-generating activities such as side businesses or hobbies may suffice to meet criteria.
Startup cards offer a variety of benefits that can include cash back and travel points, as well as redemption options like travel, cash back, gift cards, and experiences.
Businesses can maximize their rewards by choosing a credit card that offers high rewards for their most frequent expenditures and centralizing their spending to earn points more quickly.
By joining loyalty programs and planning reward trips that don’t disrupt business operations, businesses can leverage rewards for both personal and business trips, with the added benefit that these rewards are typically not considered taxable income.
Creating a ‘spend culture’ with clear rules for card and check usage can prevent unauthorized expenditures. Setting spending controls on employee cards can limit individual spending and category purchases, ensuring your financial safety.
Business credit cards offering virtual cards can be instantly issued and swiftly deactivated. Plus, real-time notifications on card usage enable immediate action against unauthorized transactions.
To mitigate significant financial losses from credit card fraud, businesses need to monitor for unusual credit card purchases, unusual transaction patterns, rush delivery requests, and orders from high-risk countries. It’s important to also be aware of the potential reputational damage and decreased customer loyalty that may result.
Lastly, using business credit cards for personal expenses can lead to serious legal and financial repercussions. This is particularly true for corporations and limited liability companies.
Startup cards are more than just a convenient way to manage business expenses. They offer an array of benefits from rewards programs, credit building, and integration with business checking accounts, to additional perks like AI-powered expense management and high-yield investment options.
As you embark on your entrepreneurial journey, remember to choose the right card that suits your business needs, understand its fees and interest rates, and use it strategically to fuel your business growth.