What are startup credit cards?
Startup credit cards are business credit cards for startup companies, and they can be difficult to get. Startups may have difficulty obtaining credit cards because they do not have credit histories as brand new businesses.
Opening a startup company can be exciting, but it takes careful planning to do it correctly. Statistics show that half of all new businesses fail in the first five years. The top reason that so many businesses fail when they are new is that they try to scale too quickly.
While most people might think that high-growth startups are primarily in the tech industry, research from the Brookings Institution has found that this is a misconception. Only 29 percent of the high-growth startups were in the tech sector. Instead, 70 percent of the startups with the highest growth are in the retail, government services, and construction industries.
To get a credit card for a startup, the companies have to rely on the credit histories of the entrepreneurs. The entrepreneurs will need to submit to credit checks to qualify for the credit cards.
The cards work like any other business credit card. They have credit lines attached to them so that purchases on the cards add to the company’s debt. They might also lead to interest charges if the balances are carried over from month to month.
Who uses startup credit cards?
Startup companies use credit cards for startups. Having access to a startup business credit card can help to solve several issues that are unique to new businesses. Using business credit cards can help new business owners to keep their personal and business finances separated. The cards also provide access to money at the time that it is needed, and credit cards may provide help when a new business has a temporary cash shortage.
A credit card for startups differs from consumer credit cards in a few ways. Business credit cards may offer certain perks that are not available on regular consumer cards. For example, a business credit card for startups may offer discounts on common business supplies, additional travel miles and rewards, or the ability to restrict the types of spending that can be completed with the cards.
How much control do you have when using a startup credit card?
Many business credit cards have few available controls, making it difficult for you to keep a handle on your credit card spending. However, some startup business credit cards may offer some additional controls such as the ability to limit the transactions by dollar amounts, days and times, and spending categories.
As compared to other payment methods such as cash or checks, a business credit card for startups may provide more security. Petty cash funds are difficult to track and may be targeted for thefts. Payment systems that rely on checks have time-consuming approval processes and high transaction costs. Checks are also sometimes targeted for internal thefts. A best credit card for startup business may be a preferable choice to alternative payment methods. However, there are drawbacks to using a small business startup credit card.
What are some other alternatives to startup credit cards?
There are a number of alternatives to a credit card for startup business, including the following:
- Bank loans
- Alternative loans
- Accounts receivable factoring
- Raiding retirement accounts
- Debit cards for startup companies
- Prepaid cards for startup companies
Some of these alternatives present their own issues. For example, banks are unlikely to extend business loans to new businesses. It can be difficult to raise sufficient funds through crowdfunding sites. Alternative loans may charge very high interest rates, and it is never a good idea to raid your retirement account for any purpose.
While debit cards and prepaid cards will not offer financing, they can give startups the flexibility to spend money when they need to do so and can help businesses to build goodwill with the companies with which they do business.
Problem of credit card fraud
Credit card fraud is a huge problem for consumers and businesses alike. The U.S. has the third highest rate of credit card fraud in the world, accounting for 47 percent of all of the reported cases and 47 percent of cardholders reporting that they had been the victims of fraud in the previous five years.
Debit cards are another payment option for businesses. Deposits that are held in a checking account are insured by the FDIC for up to $250,000, providing a layer of security for businesses. This can provide some security in the event that a thief manages to access the deposit account. However, some debit cards for businesses offer added features and controls that can help to prevent fraud.
Expense reimbursements and receipts management with startup credit cards
Businesses that use a credit card for startup business needs have to take steps to manage their expenses. Some businesses hand out company credit cards to their employees to use to make authorized purchases on behalf of the companies.
The employees must track their expenses and write expense reports. They have to save the receipts and turn them in together with the reports that they have drafted.
Businesses that rely on company credit cards for their day-to-day spending needs may not understand where they are at financially at any given time. Instead, they might have to wait until the next credit card statement arrives to see transactions that have occurred a few weeks previously. Receipts also may be lost, and accounts payable staff may have to spend time trying to track them down.
Gaps that the best credit card for startup business doesn’t address
There are gaps that even some of the best credit card for startup business needs simply cannot fill. While they are okay at solving some problems for businesses, there may be better options.
Most business credit cards do not offer robust expense controls. Instead, the credit limit on the cards will represent the maximum that the employees can spend. It is possible that employees may run up the balance because of a failure to carefully track their expenditures or because of startup fraud.
Why startup debit cards might be a better alternative
Debit cards for startup businesses might be a better alternative to startup credit cards. New business debit cards do not require credit checks and may be more accessible to business owners.
Company debit cards offer better expense management tools and can help to prevent fraud. Some business debit cards allow businesses to set robust controls so that they can limit where the cards can be used, how much can be spent each day, the total amounts that might be available on the cards, and when the cards will work. Debit cards can be turned on or off remotely at any time, giving the business owner greater peace of mind if a card is lost or misused.
Controls with a startup debit card
The controls that are available with company debit cards are much better than what is available with even the best credit card for small business startup. Business owners can turn the cards off or on remotely at any time. They can see the spending that each employee has completed in real time from their online dashboards. If they identify a problem with a card, the business owners can turn it off instantly by clicking a button.
Business owners can also set spending limits based on the location, purchase category, or amount. They can set individual spending limits on each card by the day, according to the needs of their employees.
Practicality of startup debit cards
Startup credit cards will always have a place for new businesses, but there are many situations in which it is more practical to use a debit card instead. Debit startup cards can help you to keep from overspending since you can restrict spending by the category and set limits on the amounts that can be spent.
Managing your business spend is important when you’re still a new company. When your business is getting off of the ground, every penny matters. Managing your expenses in an effective manner by using debit cards for day-to-day purchases can help you to save money and to rein in your expenses. Strong expense management can help you to prevent the failure of your business.
What are virtual cards?
Another great tool for new businesses is a virtual card for startups. Virtual cards are not made out of plastic. Instead, they are random 16-digit credit card numbers and CVV codes that are generated and that can be used to securely make purchases online or over the phone.
Virtual cards route payments through to the businesses’ deposit accounts. However, the numbers themselves cannot be used by thieves to gain access to the accounts or to the businesses’ sensitive information. Virtual startup card numbers can be set to expire as soon as they have been used and help to prevent startup fraud.
Different kinds of virtual cards
There are several different types of virtual cards for startups, including the following:
- Startup virtual numbers
- Startup procurement cards
- Startup ghost cards
Startup virtual numbers are cards that can be generated and used for one-off purchases. Once the purchase has been completed, the numbers immediately expire so that they cannot be used by others.
Startup procurement cards are virtual cards that can be distributed to specific employees to use for ongoing purchases that they need to make as a part of their jobs. Startup ghost cards are good choices for new businesses that have scaled up quickly and have multiple departments.
A ghost number can be assigned to individual departments so that it can be used by the employees to make purchases. The purchases are then charged back to the department, making expense tracking across the company possible.
Other benefits of debit cards for new businesses
There are several other benefits of debit cards for new businesses, including the following:
- Ability to avoid traditional payment systems such as reimbursements, petty cash, and checks
- Flexibility for your employees to make purchases when they are needed without filing requisition forms
- Automation of accounts payable processes
- Automatic importation of transaction information
- Ability to take photos of receipts to submit electronically
The benefits of debit cards for new businesses make them an attractive choice for entrepreneurs when they are getting started as well as after their businesses have established themselves.
What is the best startup credit card?
The best new company employee credit card solution might actually be a debit card instead of a startup credit card. A reloadable company card can offer better startup expense management tools that can help businesses to prevent fraud and other problems before they start.
Debit cards for new businesses may also be easier for companies to get and will not impact the entrepreneurs’ credit scores. Purchases that are made with the cards will also not add to the debt of the company so that it has a better chance of starting out on the right foot.
Features of good business debit cards
The Bento for Business Visa debit cards are excellent choices for startup companies because of the extensive startup expense management features that the cards offer. Business owners can order the number of cards that they need and set different restrictions on each card. The cards use 256-bit encryption technology to protect sensitive information.
Business owners can set up restrictions on the card to control when the cards will work and where they can be used. They can limit the types of purchases that can be made by purchase categories. Business owners can also set daily spending limits that differ from card to card, depending on the individual needs of the employees. Finally, business owners have the ability to switch the cards off or on at any time from their mobile device, tablet, or computer. To learn more, call 866.220.8455 to talk to a customer service representative.