2. Get Your Personal Credit in Order

Building a solid credit history for a burgeoning business doesn't happen overnight. It could take anywhere from two to five years, says Fiducial's Liser. In the meantime, your business credit will be linked to your personal credit. And it better be good.

If your business doesn't have any credit history, "personal credit is among the factors considered" when you apply for a business credit card, says Alice Bredin, a small-business adviser for American Express. "Small business owners need to make sure their credit histories are accurate and as spotless as possible."

Once you have your small-business credit card, if your business doesn't yet have a business credit record, the card will likely be listed in your personal credit report. So handle the payments responsibly. "As soon as possible, start making purchases as a business, and pay them off," says Bredin. "It's in your best interest to do this credit-building on the business side so that you pull yourself from that personal crutch." Once your business has a track record of its own, be sure to call the credit-card company and request that it no longer be reported to the consumer credit bureaus.

 

3. Securing a Business Credit Card

A good place to start is with a bank that you already do business with. Assuming you have a good track record there, you're likely to be approved for a small-business credit card.

If you don't have a flawless record — or if your bank's decision maker is a heartless Internet bot — you might have to jump through some hoops to get a credit line. The lender might ask you to deposit $5,000 in an account or a CD, for example, and in turn, it'll give you a credit card with a $5,000 limit. Once you've proven yourself to be a responsible borrower, the collateral will be given back to you, with interest, and your credit limit will probably be increased, says Liser.

 

4. Which Business Credit Card Is Best?

If you decide to forego the business credit cards offered by your bank and do your own research, you'll soon find yourself in a sea of offers. American Express alone has four types of charge cards and twelve types of credit cards. VISA and MasterCard each have four types of cards for small businesses, offered in partnership with hundreds of banks.

Needless to say, finding the card that's best for your business could turn out to be a full-time job in itself if you don't narrow down your options smartly. Here are some questions to ask before you choose.

 

First, how quickly do you plan to pay off your balance? "Some businesses want the discipline of charge cards. Others know that, given the spending they have upcoming in their business, the flexibility of paying off a balance over time is what they're looking for," says AmEx's Bredin. If you anticipate making large purchases, keep in mind that charge cards typically don't have spending limits — but you'll have to pay off the balance in full within 30 days.

 

Next, what kind of rewards do you want? "It used to be just flyer miles. Now, you can get points toward all kinds of things," says Bredin. Cash back, discounts when you shop at certain merchants — the good news is, those rewards are often targeted to the needs of small-business owners, say a discount at Kinko's, or double points at Staples.

 

If you're going to need more cards for your employees, check to see if the card provider offers additional cards for no fee.

Click here for CardWeb.com's October 2003 survey of business credit cards. You'll find a list of 32 cards with low interest rates and low or no annual fees. (Keep in mind, you'll likely need good credit to qualify.) Bankrate.com also has a handy tool that lets you search for business cards that offer the best deals.

 

5. Words of Warning

We can't say it enough: Because you will be personally liable for your debts, be sure to use your credit card wisely. "I've had several people complain to me that they were held personally liable for their company's credit cards and they didn't know [that would be the case]," says credit expert Detweiler. Negotiating the removal of that personal-liability clause from your agreement won't be easy, says attorney Langer. But it isn't impossible. (Follow our tips on building a good credit name for the business, and you're in a much better negotiating position.)

Also, if you notice an employee has abused the account, immediately call the bank and see what you can do. Otherwise, you might get stuck with the bills. To be on the safe side, lower the credit limits for your employees.