Category Archives: Finance

Separate The Personal and Business Finances

You’ve been warned about mixing business and pleasure, but what about personal finances and business finances? At times, it may seem tempting to utilize your personal finances to help out when your business needs a boost, but it’s not always the best solution in the long run. Implementing a financial division between your personal and business finances can help you treat your business like the independent entity it is while safeguarding your personal finances.

 

Why is separating your finances so important?

Though there are many benefits to keeping your personal and business finances separate, two of the main reasons you should draw a line in the sands of finance are based on taxes and personal protection.

 

Taxes

Do taxes ever really seem cut and dry?  If you’re in the majority, the answer is no.  If you’re not, then rest assured that many of us are incredibly envious of your taxation acumen.  One of the main reasons you’ll want to split your business finances from your personal finances is taxes.It is much easier to keep track of business expenses if you use a separate business account.

Once you have your shiny new business checking account, keeping track of things like expenses is essential to properly filing taxes.  From office expenditures to operational and inventory purchases, every receipt counts.  When it comes time to file your taxes (or hand everything over to your accountant), a thorough collection of business-only information is going to save you a lot time and a significant amount of stress.

 

Personal Liability

Separating your personal and business finances is important for tax reasons, but perhaps equally, if not more important is a separation of your personal finances for the sake of your personal security. Using your personal finances to back any entrepreneurial venture can be risky business, but not just because of the initial financial gamble.

Entrepreneurs often wind up signing personal guarantees for leases, loans and lines of credit. Sometimes that’s necessary–especially when your business is young and hasn’t established a strong business credit rating. But your goal should eventually be to avoid personal guarantees as much as possible.  The way you do that is by building strong business credit, so lenders can be confident that your business can and will repay its debts

 

Tips for Separating Your Personal & Business Finances

Now that we’ve distinguished two of the more significant reasons to keep your business and personal finances separate, let’s take a look at a few of the ways that you can proactively put this division in place.

  1. Consider incorporating. incorporating your venture as a C Corp, S Corp or limited liability corporation (LLC) can provide tax benefits, but more importantly help protect your personal assets, provided you set it up properly and maintain it correctly.  By maintaining a corporate structure, you can protect your personal assets from business debts, losses and lawsuits. (Keep in mind, though, that if you sign a personal guarantee, creditors can try to collect from your personal assets if you default on a debt.) If you’re serious about creating a business, incorporating is a smart first step.
  2. Open a Business Checking Account. Once you’ve made the decision to start your own business, one of the very first things you should do is head to the bank and open a business checking account. There are multiple reasons why this is a healthy step for a business.  For starters, it will streamline cash flow and making record keeping much more efficient.
    Additionally, a business account lends itself to easy finance tracking – something that you or your accountant will vastly appreciate come tax time. As mentioned before, a separate business account can help signify to the IRS that your venture is a business and not just a side project or hobby, making more of your expenses tax deductible.
  3. Apply for Business Credit Card. Business credit is a big deal, and one quick and easy way to start to build it is by obtaining a business credit card. In addition to fantastic perks like building a credit history for your company, a business credit card will help you eliminate the need for personal credit cards for businesses purposes. Opening one of these cards will also help streamline business finances, and some cards reduce the risk of having your business transactions impact your personal credit. In addition, you may be able to deduct card costs (an annual fee and interest, for example), if you use it exclusively for business purchases. That may not be the case if you mix personal and business expenses on the same card.
  4. Set a Budget. Being armed with a business credit card and a business bank account is a terrific start, but there is another step that really can help you keep things in check – a budget. It doesn’t seem like setting a budget for your business would do a whole lot in terms of separating personal and business finances, but it can really come in handy.
    Preparing (and sticking to) a budget for your business can prevent you from delving into personal finances due to poor planning. Of course, emergency situations can happen and even the best planned budgets may not always work out as intended. However, by creating a clear cut budget, you’ll be able to reduce the risk of running into avoidable costs that would otherwise leave you turning to your personal finances for rescue.

Business Credit Cards for Travel

Business road warriors are used to packing their bags. But wouldn’t it be more exciting to get ready for your upcoming trip if you knew there were sweet rewards involved?

That’s where business credit cards come in. You probably know of or have a personal credit card that rewards you for your purchases with miles or points that you can spend on flights or hotel stays. But business credit cards for travel sometimes offer even better rewards than personal cards, along with a host of other perks including helping you separate your personal and business finances and build business credit.

Here are some of the best business credit cards for travel we’ve identified for frequent flyers that could be a big win for your business.

The Platinum Delta SkyMiles card from American Express is a great card for frequent Delta travelers who plan to make a large amount in purchases ($50,000+) on their card each calendar year. This card has a killer signup offer of 35,000 bonus miles and 5,000 Medallion® Qualification Miles (MQMs) if you spend $1,000 in the first 3 months. MQMs help you get closer to reaching Medallion status in the Delta SkyMiles program. As an added bonus, you’ll get a $100 statement credit after you make a purchase on Delta using your card within the first three months.

Added benefits:

  1. Two miles per dollar spent on Delta purchases, and one mile per dollar on all other purchases.
  2. No foreign transaction fees.
  3. Earn more miles with boost programs: 10,000 bonus miles and 10,000 MQMs after $25,000 in purchases each calendar year, as well as another bonus after $50,000.
  4. Earn a domestic, round-trip companion pass each year you renew the card.
  5. Added Delta bonuses: free checked bag, priority boarding, 20% savings (via a statement credit) on eligible purchases made in-flight.

Drawbacks:

  1. If Delta isn’t a convenient airline for you, this won’t be the best card.
  2. $195 annual fee.

The Starwood Preferred Guest Business Credit Card from American Express offers a flexible rewards program for frequent flyers of many different airlines who enjoy comfortable resort and hotel stays. New cardholders will earn 25,000 bonus points after they spend $5,000 in the first 3 months. Along with a generous rewards program, new cardholders will earn additional bonus points if they spend even more. Earn SPG Gold status after 30,000 in purchases on your card in a calendar year, which allows you to score more hotel upgrades, late checkouts, welcome gifts during hotel stays, and more.

Added benefits:

  1. Five “starpoints” per dollar spent at Starwood Hotels, two points per dollar at Marriott Reward hotels, and one point on all other purchases.
  2. Points can be redeemed at over 1,300 hotels and resorts, and over 150 airlines within the SPG program.
  3. No foreign transaction fees.
  4. Free Boingo WiFi at over 1M Boingo hotspots.
  5. Access to Sheraton Club Lounge.

Credit Cards for Bad Credit

Credit mishaps happen for a number of reasons, and perhaps one has happened to you. The good news is that there are a few business credit cards for bad credit which will give you the chance to build your business credit so that you can qualify for credit increases or new cards without having your personal credit called into question. (Solid business credit scores can open a number of other doors as well).

To save you time, we’ve put together a list of what we think are the best business credit cards for bad credit available to business owners.

The Capital One® Spark® Classic for Business card allows cardholders to earn rewards without needing excellent personal credit scores to qualify. As a huge bonus, business owners who make on time payments and keep their balances low can build business credit, however it’s worth noting that your payment history may be reported to personal credit reporting agencies and affect your personal credit scores. (Editor’s Note: This card’s details were updated in June to reflect new terms.)

 

Secured Business Credit Cards

For business owners looking to build their business credit, another option is a secured business credit card. A secured card requires a security deposit that can be used to pay your debt if you default. This is a way for credit card companies to minimize the risk of a bad credit borrower. Secured cards usually allow borrowers to charge up to the amount of their security deposit (below you’ll see a case where that isn’t quite true).

Our Top Picks:

 

1. Wells Fargo Business Secured Credit Card

Pros:

  • Rewards: 1% cash back or 1 point for every dollar spent: your choice. $50 annual fee after the first year to enroll in rewards program
  • Low interest: Prime rate + 9.90% APR
  • 21-day grace period on purchases

Cons:

  • Annual fee: $25
  • $50 annual fee after first year to enroll in rewards program

The Wells Fargo Business Secured Credit Card allows cardholders to secure a credit line between $500 – $25,000, depending on how much you are willing to deposit. With this card, the amount of your credit line is equal to the amount you deposit. This card has a very low interest rate and the annual fee is low at $25. The only big drawback is that cardholders who wish to earn rewards points on their purchases will have to pay an annual enrollment fee of $50.

 

2. BBVA Compass Business Secured Visa Credit Card

Pros:

  • Low interest: 16.49% (or WSJ Prime + 12.99%)
  • Rewards: 1 point for every dollar you spend. Choose your own categories in which you’d like to earn double or triple points.
  • No rewards enrollment fee

Cons:

  • Annual fee: $40
  • Only 90% of your deposit will be available as a credit line

The BBVA Compass Business Secured Credit Card works similar to the Wells Fargo Secured Credit Card, however your credit line will only be equal to 90% of your deposit amount. There is a higher annual fee at $40 per year, but there is no fee to enroll in the rewards program. Additionally, the annual fee for the first year is waived. The rewards for this card include double or triple points in the category of your choice, which is a great perk for business owners who spend a large portion of their credit on one category, such as gas or groceries.

Get a Business Credit Card in 4 Steps

More and more small businesses are turning to business credit cards as a way of having back up financing and improving their business credit scores at the same time. Many business credit cards offer perks just for using them, including frequent flyer miles and cash rewards. Business credit cards are great for business owners who need back up credit for emergency situations or to offset irregular cash flow. Additionally, making on time or early payments on a business credit card will help your business build its credit so that your business can secure better terms with vendors and suppliers, government and high profile private contracts, and the right business financing at the right price.

But how does one go about getting a business credit card? While the process is relatively painless there are many choices to take into consideration. Let’s take a look at some of the steps you’ll need to take in order to obtain a business credit card.

 

1 .Close your eyes, take a deep breath, and look up your credit scores.

The people to whom you’re applying for a business credit card will want to know how responsibility you behaved with your credit. A low credit score will not automatically keep you out of the running for all cards, but if you find yourself getting denied, you can check out this list of business credit cards with lower credit standards.

 

2. Choose the right business credit card.

Spend some time thinking about how you plan to use your card so you can pick one that meets your needs. Do you want rewards? If so, cash back or miles (or something else)? Do you pay in full or plan to carry balances from time to time? If the latter, a low interest rate will be important. You’ll also want to understand whether the cards you are interested in are available based on your credit scores.

Time Saving Tip: Check out Nav’s business credit card marketplace if you need help choosing a business credit card or signup for a free Nav account and get matched to credit card and financing offers based on your credit.

 

3. Apply for your new business credit card!

These applications usually ask for basic business and personal information such as your name and date of birth, the name of your business, its address, and your EIN (or SSN if you don’t have an EIN). If you’re the company owner, you will likely be required to give your personal social security number as well. You’ll also need to provide information regarding the type of business you’ve started—the options being sole proprietorship, partnership, and corporation—along with the number of years you’ve been in business and a little bit about your industry.

If you’re a startup wondering how to get a business credit card, know that business credit card applications are going to require your personal household income information. Usually when you’re filling out your application, you’re asked to enter your business income for the previous year. Since you didn’t have a business income last year, your creditor will have to look to your personal household income when making their decision.

Know more about Secured Business Credit Card

For many businesses, credit cards are an essential part of your business activities. They can help you build your credit and obtain the assets you need to properly run your business. Unfortunately bad or non-existent credit may make it difficult to be approved for a credit card. For those denied approval for a credit card, if you are looking to establish or rebuild your credit, a secured credit card can represent a viable option.

So, what exactly is a secured business credit card? Quite simply, a secured credit card is one that requires a deposit or collateral up front. In most cases, this deposit must be made in cash, although there are some lenders that will accept collateral in the form of homes, cars, etc.

Though a deposit may not sound ideal, a secured business credit card or secured business credit card can be a valuable tool to build and repair your credit. The security deposit will ensure lenders that, despite your bad credit, you will be able to pay them back. Much like a regular credit card, you can use a secured credit card to make purchases or pay bills when cash is not an option. Your payment history will be reported to the major credit reporting agencies and an account that remains in good standing (no late payments) over a period of time can help you boost your credit score.

The security deposit required will vary from lender to lender, but all lenders will review your credit history, income or available capital, and perceived ability to pay on time. For those who have bad credit, that may sound scary, but keep in mind that this particular type of card is specifically for individuals or businesses with bad credit.

Typically, your credit limit will be equal to or a percent more than the required deposit; this means that the credit card company is lowering their overall risk by securing funds ahead of time. For example, if you’re approved for a $500 credit limit, you will be required to pay a security deposit of, or close to, that amount.

It’s important to note that this is not a prepaid credit card in which your deposit will be used against the balance you accrue. Instead, your deposit will be held separately, and you will be required to pay your bill in full without relying on the money you paid up front.

 

What Happens to My Deposit?

As mentioned above, your deposit is held separately, and much like a deposit for say, rental equipment, you will get it back as long as you live up to your end of the bargain. In this case, it’s making regular payments on your account and eventually reaching a zero balance.

When exactly you get your deposit back can also vary from lender to lender, but in all circumstances, your account will need to be in good standing. With that in mind, these are the most common scenarios in which a secured credit card lender will return your deposit.

In one scenario, the deposit can be returned to the cardholder upon their decision to close the account. Of course, it’s not as simple as just saying “I’m done, let’s close this down.” Your account must be in good standing and carry a zero balance at the time of closing.

The other, perhaps most desired, scenario is one in which the account holder has successfully reduced their perceived risk by maintaining a history of on time payments and manageable balances. In this case, the lender may determine to convert your account from a secured credit card account to an unsecured one and to return your deposit without requiring you to close the account.