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Benefits of Corporate Credit Card Programs for Startups

Kristina Russo

By Kristina Russo | American Express® Freelance Contributor
5 Min Read | September 17, 2021

Benefits of Corporate Credit Card Programs for Startups

Cash flow issues are consistently cited among the top factors preventing a startup’s success. But corporate credit cards may provide a possible solution to the cash flow conundrum for new businesses. Traditionally reserved for large, established businesses, corporate credit cards are now offered by several card issuers to fund startup ventures. Compared with small business credit cards, this new breed of corporate card provides many benefits for startups.

1. Corporate Cards Mean Corporate Liability, Even for Startups

 

A key distinction between corporate cards and business cards lies in who the customer is. For business cards, it’s typically the owner of the company. For corporate credit cards, it’s the company itself as a distinct, legal entity. Corporate credit cards, even for startups, are only issued to corporations, C-corps, S-corps, or LLCs. With corporate credit cards, the corporation owns the credit line and is responsible for paying the outstanding balance, not its shareholders or executives. Unlike business credit cards, corporate credit cards don’t require a personal guarantee from the business owner.

 

Eliminating personal guarantees from a startup’s founders is particularly important because it releases them from personal liability and potentially lower personal credit scores if the business fails to make payments. Sometimes companies use a joint liability approach that shares responsibility among individual employee cardholders, but that is less common with startups where, most often, the bill goes directly to the company for payment.

2. Startups Can Access Higher Credit Limits with Corporate Cards

 

Typically, a corporate credit line is determined by a company’s credit score and payment history, and it’s usually larger than what the company owner’s personal qualifications would allow with a business or personal credit card. However, because new businesses don’t have much history to go on, corporate card programs for startups will generally set the credit limit as a percentage of linked bank account balances.

 

By doing so, the card issuer can mitigate its risk. For startups, seed or venture funding can fuel fast growth with access to more capital. Some programs have minimum bank account balances to get started. Some also allow adjustments to credit lines as bank balances change. Further, some will tweak the percentage applied to the balance as payment history evolves.

3. More Float Time Can Slow a Startup’s Burn Rate

 

Burn rate refers to how quickly a startup spends its cash balances prior to commencing profitable operations. Companies with a higher burn rate are at a higher risk for failure, whereas a lower burn rate usually means a better cash position. Instead of using cash for purchases, startups can hold onto their cash a little longer by paying with a corporate credit card. They can take advantage of the time between when a transaction is posted to the corporate credit card and when the balance needs to be paid off before interest is charged. This is especially helpful due to typically higher corporate credit card limits.

 

However, burn rates that are too low might hinder the growth necessary for a successful launch. It’s a delicate balance that can be assisted by the flexible spending power and access to additional capital provided by a corporate credit card.

Benefits of Corporate Credit Card Programs for Startups

4. Corporate Cards Can Offer Valuable Rewards and Benefits

 

Many credit cards offer rewards for use, but in the case of corporate cards, those rewards accrue to the company rather than an individual. Selecting the right corporate credit card includes identifying rewards programs that are meaningful and valuable to the startup. Chosen wisely, these rewards can save the company money on expenses like travel or entertainment, or they can be redeemed for statement credits. Higher corporate credit limits combined with big ticket startup costs can make it easier to quickly accumulate cost-saving rewards – and money saved means a slower burn rate.

 

Further, corporate credit card perks can be beneficial for attracting and motivating staff. Perks such as ride-sharing, airline upgrades, airport lounge access, and hotel and airline VIP status can help offset the lower salaries and increased efforts often characteristic of a new business. In some cases, startups may even opt to share their rewards with their staffers to help make personal travel less expensive for vacation days. And, compared with personal credit cards, corporate cards can enhance a startup’s image when entertaining prospective customers and investors.

 

Of course, to get the most out of a corporate card’s benefits and rewards, startups should strive to pay off balances on time and in full to avoid interest charges.

5. Corporate Card Tools Streamline Expense Reports with Helpful Business Tools

 

Submitting paper expense reports can be cumbersome for employees and contractors who travel and entertain on behalf of the startup. Corporate credit card issuers offer various forms of a tool that allows cardholders to automatically upload activity directly into accounting systems via their mobile devices. These tools enhance the quality of expense reports and their supporting documentation, like receipts and notes.

6. Corporate Card Programs Can Help Startups Save Time with Automated Payments

 

Some corporate card issuers allow startups to make payments made to third parties, such as suppliers and vendors, via the card. Payments can even be made through the credit card issuer in various forms – such as credit, check, or ACH – and applied against the corporate credit card limit. In turn, the credit card activity automatically integrates with various accounting and enterprise resource planning (ERP) systems. As a result, procurement spending earns rewards when the corporate card balance is paid in accordance with its terms and conditions. Additional benefits of automated payments include reduced payment reconciliation time and the ability for startup management to put spending limits in place.

7. Virtual Corporate Credit Cards Can Streamline Employee Spending

 

It’s common for startup staffing to come in various forms, including full- and part-time employees, consultants, freelancers, and contractors. Regardless of employment status, there may be times when these workers require access to the company’s corporate credit line, which can be made possible by virtual corporate cards. These one-time, or limited-time, credit card numbers can be generated for use without an actual plastic card. Virtual cards are accepted similarly to physical cards and sync with financial systems for easy reconciliation.

 

The Takeaway

Previously reserved for large, established companies, corporate credit card programs are becoming available to startups. These programs provide several benefits for startup founders who are busy launching their businesses. Corporate liability, larger credit lines, and the ability to earn rewards can be game-changing for some young companies. When combined with innovative business tools that are often included, a corporate credit card may help boost a startup’s chance of success.

Kristina Russo

Kristina Russo Russo is a CPA and MBA with over 20 years of business experience in firms of all sizes and across several industries, including media and publishing, entertainment, retail, and manufacturing.

 

This content was written by a freelance author and commissioned and paid for by American Express. 

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