Securing a Business Credit Card: Navigating the Challenges and Strategies

Starting a new business can be both exciting and daunting, with many aspiring entrepreneurs eager to secure a business credit card to establish credibility and financial stability. However, the question often arises: is it possible to get a credit card for a brand new business? In this article, we explore the eligibility criteria, key requirements, and alternative strategies to help new businesses secure the necessary financial tools.

Eligibility Criteria to Apply for Business Credit Card

Securing a business credit card is not as straightforward as obtaining a personal credit card. Several factors need to be considered to ensure you meet the establishment's criteria. These typically include:

Applicant Age: Applicants must be at least 21 years old and not exceed 70 years old. Company Age: The company should be at least two years old. Annual Turnover: The company must have a minimum annual turnover of Rs 10 crores (approximately $1.35 million). Bank Requirements: Banks often issue corporate liability credit cards, which are secured by the company's assets and can lead to personal liability for the owners.

Navigating the Application Process

The application process for a business credit card involves providing several key documents to ensure your business meets the eligibility requirements. These documents are categorized into three main types:

Identity and Signature Proof

Passport PAN card Driving license Voter ID card Aadhaar card (for government employees) Employee identity card (for government employees)

Address Proof

PASSPORT PAN card Driving license Voter ID card Aadhaar card (for government employees) Employee identity card (for government employees)

Age Proof

Voter ID card Secondary School Certificate (class 10th) Birth certificate PASSPORT Aadhaar Card for those over 14 years Pension payment order or Receipt of LIC policy for those over 18 years

Income Proof for Self-Employed Businessmen/Professionals

Latest IT Returns with computation of income Other certified financial documents Business continuity proof

Once the required documents are submitted, the application process can take some time. You will typically receive a response via email, often with a binary outcome: yes, no, or maybe (based on certain conditions). This maybe response signifies that conditions in your business, or your financial history, might need to be met to ensure a positive outcome.

Alternative Strategies to Secure a Business Credit Card

While traditional methods of obtaining a business credit card can be challenging for new businesses, there are alternative strategies to explore:

1. Personal Guarantee Credit Card (Amex Charge Card)

The Amex Charge card is a viable option, especially for new businesses. By guaranteeing the credit card debt personally, you can circumvent the conventional eligibility criteria more easily. Here’s how it works:

No Limit: The charge card won’t have a preset limit, so you can use it as needed. Interest-Free Period: Aim to pay the balance in full every month to avoid incurring large amounts of interest. Amex Attention: Responsible use over a few months can earn you the trust to open a business card.

This strategy can be the fastest and most effective way to secure a business credit card without needing an extensive history of business operations.

2. Personal Credit and Collateral

Local banks may be more flexible and willing to issue a credit card to a startup if personal credit and collateral are secured. This strategy involves:

Personal Credit: Banks will require a guarantor with a good credit history. Collateral: Assets such as real estate, vehicles, or other valuable items can be used to secure the credit. Personal Responsibility: If the startup fails, the guarantor will be responsible for repaying the credit card debt.

While this method might offer some flexibility, it also carries significant risks, as you could be personally liable if the business fails.

Challenges and Considerations

Banks are often hesitant to extend credit to new startups due to the inherent risks involved. As a result, relying on banks for credit can be a significant challenge:

Historical Woes: Banks historically have been the worst place to fund startups, preferring to see established businesses with an established track record. Documentation Requirement: Banks typically require proof of income, financial statements, and tax returns to gauge the risk involved. Careful Consideration: Credits can be a double-edged sword; while they offer benefits like cash flow management and business growth opportunities, they also come with the risk of financial strain if not managed properly.

Given these challenges, aspiring entrepreneurs should carefully weigh their options and explore alternative financing methods, such as personal guarantees, collateral, or even alternative financial platforms that may be more amenable to assisting new businesses in securing the necessary credit.

Conclusion

Securing a business credit card for a new business can be challenging, but it's not impossible. By understanding the eligibility criteria, exploring alternative strategies, and carefully considering the risks and benefits, new businesses can enhance their financial liquidity and operational efficiency. Whether through personal guarantees, using alternative credit cards like Amex Charge, or leveraging collateral, the right approach can significantly bolster your business's financial health and success.