This step is pretty simple. In the next class we’ll talk about lines of credit (LOC) but until you have one your company credit card is the next best thing, albeit with a smaller credit maximum and higher interest rates.
Characteristics of a corporate card:
- Credit cards are expensive! They tend to have large fees and high interest rates.
- The lending limits are low
- They can help your business establish a credit history which is critical when you go for larger loans.
Liability and payments: In the class on company formation we mentioned that different corporate forms can shield you from the liabilities of your company but that will NOT shield you from credit card debt if you guarantee it personally. Which means that even if the business goes bankrupt the credit card is still coming after you.
As with your personal cards, it is crucial that you stay up-to-date with your payments. In order to obtain and maintain a “lend-worthy” credit score, you should always pay the full balance each month rather than the minimum (this will also result in you saving money by avoiding compound interest rates.)
Keep your personal and corporate expenses separate! Similar to your bank accounts, it is important that personal and corporate expenses are paid for exclusively with their respective credit cards.
How do I apply? You can apply to the card company directly (ex. American Express) or go through your banking institution (e.g. Visa and Master Card).
Impact of personal credit: I have touched on the importance of having a good personal credit score but I just want to reiterate how much of an impact this can have. Think of it this way–the bank is making a loan to a company, but who manages a company’s finances? People do. That is why it is so important to manage your personal finances properly–they can impact the loaning decisions that a bank makes to a company you are starting or involved in.