Many entrepreneurs think of credit cards solely as short-term financing options, small potatoes. But when moving your company to the next level means you need to get a business loan for $300,000, you can use a business credit card as a plastic stepping stone and move closer to your goal.
Here’s how using a credit card for business can position your company for the funding you need to reach your next opportunity.
Separate Personal and Business Finances
Many small business owners mix personal and business expenses, leading to headaches when they apply for financing. Inconsistent financial records or blurred lines between business and personal finances raise red flags for lenders. Your company’s books must be clean to qualify for significant funding.
You create a clear paper trail when you use a business card for only company expenses. It simplifies accounting for you and appears professional and organized to lenders. And with all your financial records tied to a designated business account, you can quickly find documents for loan applications.
Using a business credit card to keep everything clean, separated, and well-documented puts your business in a stronger position when aiming for six- or seven-figure financing.
Establish Your Business Credit Profile
Building a robust credit history for your company is not easy. You can’t usually get a loan to build credit until you have a credit history, but you need some kind of credit-building tool to establish your profile. It can feel like a closed loop. But a business credit card gives you a chance to break the cycle.
You don’t usually need established credit to secure a business card. You can quickly build your company’s credit history by opening a card in your organization’s name, using it regularly, and making on-time payments. And unlike personal credit cards, most business credit card issuers report activity to business credit bureaus rather than personal ones, though some may report to both. You can establish a basic credit score within six months.
Establishing your business credit history is essential to securing larger loans in the future. Lenders might be hesitant to fund an unproven company, but look more favorably on companies with responsible credit behavior. A business credit card is the first step to a strong borrowing history.
Manage Your Cash Flow
When you apply for financing, lenders want stable revenue, consistent expenses, and sufficient leftover cash to cover a loan payment. They use cash flow to decide if you qualify and how much capital you can secure. You can protect your cash flow with a business credit card.
Using your credit card for routine expenses like software subscriptions, travel, or inventory allows you to align expenses with incoming revenue and give yourself breathing room to cover any unexpected gaps.
More importantly, lenders who later review your financial records will see that you manage your cash flow responsibly. This pattern sends a strong signal to banks and alternative lenders that you’re not a risky borrower and sets you up for larger funding in the future.
Unlock Lender Relationships
Many financial institutions that issue business credit cards also offer larger lending products. Your business credit card is a proving ground for these lenders: the better you perform, the more opportunities you unlock.
Lenders are more likely to look favorably on applications for businesses they know and trust than on brand-new customers. They already have your financial history and evidence of your creditworthiness. As you use and repay your business card, you form a strategic relationship with that institution and gain a significant edge in the approval process.
Build Your Finances Through Rewards
While business owners may see rewards as a side benefit, they can help you build your finances and work toward larger funding. You just have to direct every dollar you save through your business credit card toward the right investments.
Let’s say you earn 2% cash back from your cash advance business credit card. With $5,000 in monthly expenses, you can save $1,200 to build your reserve fund. Or you could use the merchant cash advance perk to buy discounted inventory quickly, increase your revenue, and improve your borrowing history.
These small investments can make a difference in a loan application. Having significant cash reserves increases lender confidence. Successfully using borrowed capital to grow your business lowers the provider’s risk of financing your next project. Maximizing rewards and managing every dollar intently signals to lenders you’re ready for funding.
A Credit Card Strategy for Your Future
Using business credit cards responsibly is the key to reaching your funding goals. Treating your credit like free money or racking up high-interest balances can set you farther back than you were to begin with.
Be intentional with your credit card. Use it to fund short-term operational needs, don’t max out your credit limit, keep records, and make repayments on time. Stick to your strategy and always think about how your actions today will affect you six or twelve months down the road. Then, using your business credit card today can launch you toward those bigger opportunities in the future.
