Pay your business expenses with your personal credit card? stop!

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Do you use a personal credit card to pay business expenses? Amanda Webster, chief operating officer of Fund & Grow, which has helped more than 30,000 companies obtain business credit totaling more than $1.8 billion, notes that about 80 percent of business owners fall into this trap.

If you’re ready to keep your business and personal finances separate and make the most of your EIN, Webster outlines the steps you need to take to achieve this goal.

If you haven’t given up on Schedule C yet, it’s time to get your own EIN (employer identification number)

When I lived in Los Angeles and filed Schedule C for my business expenses, I went through four detailed audits over a six-year period. reason? The IRS wants to keep a strict distinction between your business and personal expenses. Setting up an LLC or S-Corp with your own EIN can simplify this problem. More importantly, it opens the door to obtaining business credit.

The difference between personal credit and business credit (business credit card)

Webster and I recently discussed how business credit is underutilized and how you can leverage a good personal credit score to build business credit.

Obtaining personal credit and business loans can be extremely challenging for real estate professionals because they are considered higher-risk borrowers. The best way to overcome this challenge is business credit.

“If you apply for a business loan, you must provide financial statements and have an experienced business that can demonstrate that the business generates $40,000 to $50,000 per month in revenue from verifiable sources. I can’t tell you how many people have real Healthy Airbnb-style businesses, yet they are still being denied business loans because lenders view the deposits as risky,” Webster said.

“With business credit, you don’t need any of that because you can leverage a good, clean personal credit history to get business credit without the need for financial statements or gross income.”

2 reasons to switch from personal credit to business credit

• Webster explains that business credit lines are typically higher because they are tied to income.
• The second reason is the acquisition of capital. according to Fraction82% of small businesses fail due to cash flow problems.

“While cash is king, my philosophy is that credit is king. It’s the counterpart to cash, and you need both. If you can put cash in a bank and use other people’s business credit to fund it, then you Your bank credit will be higher and your financial statements will look healthier to everyone,” Webster said.

“Keeping cash flow in a bank account to reinvest in other things is the safest way to keep your business healthy. Building a healthy business credit profile takes work—you need to have a credit score in both the personal and business areas.

Business credit is ideal for real estate investors

Webster explains how Fund & Grow helps clients through the business credit process.

“The beauty of business credit is that it’s unsecured, revolving, and it’s great when you’re doing deal after deal,” Webster said.

Why business credit isn’t a do-it-yourself process

Webster says there are two challenges in getting business credit that you might struggle to handle on your own.

The first challenge is that there are hundreds of programs, but how to identify them? You can certainly ask ChatGPT to find the top-ranked business card programs with the best benefits and go from there.

The second problem is that approval decisions are made by algorithms. Webster cited an example where they saw an application rejected because someone left a post office box number on the application.

One of the differences between business credit and personal credit is that you can call the underwriter and advocate for yourself. This may include asking why you were declined or received such a low limit.

Business Credit and Bank Credit Line

Unlike revolving business credit, when you get a business term loan from a bank, it’s only good for two to three years. You are then forced to reapply and go through all the hoops again to get a new loan.

“You don’t have to do anything with business credit because it’s circular. If you treat it right, you’ll keep building and building and have more opportunities and eventually get to the stage where you can get non-recourse business credit. ,” Webster said.

Key benefits of using business credit include points, rewards, cash back, and other benefits. These can be quite large. Additionally, you only pay back the amount you borrowed. In contrast, with many business loans, you will receive the funds in one lump sum and then pay interest on the entire amount. There are no benefits for the business line either.

Business credit up to $250,000 at 0% interest

Webster explained that hundreds of business cards had a 0% introduction rate. The 0% referral fee usually lasts for 12 to 22 months.

“You use it aggressively until you hit the limit and then pay it off aggressively, but during the zero percent period you can build it up. Once the zero introductory rate goes away, you need to follow a plan to pay off the loan.

an important philosophy

When it comes to business or personal credit, Webster says she has the same philosophy for both:

“I don’t use my personal debit card to purchase anything because it’s tied to my cash. I feel the same way in business. Your business bank account card should not be used for anything because it’s tied to your operating cash Hook,” Webster said.

“Instead, use your line of business to pay for purchases because you earn points and get more fraud protection. Again, it’s important to have a plan to use this credit once the 0% interest rate is gone Make short-term holdings.

How Real Estate Professionals Leverage Business Credit

Webster said real estate clients use their business credit in the following ways:

• They use trade credit to close the deal, often to cover closing costs or other fees. Generally speaking, it is easier to get a commercial mortgage once they own the property and then refinance before the commercial mortgage matures.
• If it’s a fixed flip or buy and hold, they can use business credit to purchase the property and then pay it off within a reasonable period of time. “If you’re in that world, there’s always a cost of capital,” Webster said.
• If they have completed a few properties in the past and have money to cover the cost of the property, they will often use their business credit and/or “vendor line” to pay for their rehab. Some even use it to pay for gigs.

Webster reiterated, “Unlike your personal credit card, which causes your credit score to drop when you use up all your credit limit, your business card can be used up to its limit without you being affected.”

interest rate

Business card rates, like personal cards, fluctuate widely. Credit limits range from 9% to 29%. It depends on your profile. Webster described the steps she follows to evaluate each borrower’s individual situation.

• Check your existing credit because even though it won’t show up on your business credit score, it will play a role in building your business credit.
• Analyze how your business entities are set up, how they report, and make sure everything is running smoothly. Credit is denied for silly reasons—for example, a suite number is missing from your business address.
• Check your credit application to make sure everything is complete. If you don’t check the required boxes, the computer will simply deny your credit and move on.
• See what types of plans and offers make the most sense for you. For example, do you travel frequently and want airline miles?

Additional suggestions

Don’t cancel cards you don’t use

Webster strongly recommends never canceling a card or simply stopping using it because of all the work you put in to get it, whether it’s a business or a personal matter. If you close a card with a large limit, you will lose all credit history, which is an important part of your credit score. Instead, use it once a month to buy gas or other items.

You can re-apply for another 0% introductory price list

Once your zero-interest rates are used up, you can apply for other zero-interest cards or combine them with new offers from your current credit card company.

Another world of corporate credit and supplier trade lines

If you are an active investor flipping or rehabbing homes, you will also need to establish a trade line of vendors. These are basically 30-day, 60-day or 90-day accounts.

“The interest is still 0% because there is never interest on the supplier trade line. You just pay back within the terms,” ​​Webster said.

“If you have $100,000 at Home Depot or Lowe’s, you can greatly expand your capital by using those funds. You can use those cards and convert it into business credit.

How to do business with Dun & Bradstreet

Obtain the DUNS number (Data Universal Numbering System) from the following location Dun & BradstreetIt is a unique nine-digit number that identifies your business and is the starting point for your company’s instant corporate identity. according to Dun & Bradstreet websiteyour “real-time business identity is the most comprehensive and continuously updated view of any company in the data cloud.”

Having a DUNS number gives you a PAYDEX score that reflects your business’s payment history. Scores range from 1 to 100. A score of 80 or higher generally indicates prompt payments and is useful for obtaining new or additional lines of credit.

Webster’s final conclusion

“Go get some education, learn about business credit, and charge business expenses to your personal credit card. Don’t let lack of capital be the reason your business fails because I want to see every entrepreneur succeed,” Webster said.