Sole proprietor or LLC when applying for a business credit card?
Your business credit card is a vital financial tool, offering you a much-needed lifeline to scale your company. But if you’re an early-stage founder, solo entrepreneur, consultant, freelancer, or gig worker, you may still be deciding how to structure your business. And, you may not realize that your structure can actually impact your credit card eligibility.
You might be wondering, can a sole proprietor get a business credit card or do you need an LLC for a business credit card? The short answer is that you can get a business credit card as either a sole proprietor or an LLC. However, the process and advantages differ based on your business structure.
In this piece, we’ll get into the nitty gritty of securing a business credit card as a sole proprietor or LLC. We’ll also break down how your business structure can impact the way lenders view your company, so you can make confident decisions at day 0 and beyond.
Can sole proprietors get a business credit card?
You can get a business credit card for a sole proprietor, but keep in mind that your approval hinges on your personal credit history. This means that if you’re approved, your credit limit as well as interest rates on your business credit card will be dependent on your personal credit. As a sole proprietor, there is no legal separation between you as a person and your business, so you’re personally on the hook for the debts your business may incur.
To get a sole proprietorship business credit card, you’ll first need to determine whether you’re eligible based on the credit card eligibility criteria. Some credit cards specify how many years of business experience you need, for instance, or what type of business structure you should be operating under to qualify.
Next, you’ll fill out the required documentation, which will include your personal and business details such as names and addresses. You’ll likely need to provide your estimated annual revenue and business expenses. Once you’ve got those details, it opens the door for many sole proprietorship business credit cards using your Social Security Number (SSN) instead of an Employer Identification Number (EIN). Plus, you’ll need to provide a personal guarantee.
There are several business credit card options for sole proprietors, including Capital One business credit cards, Citi business credit cards, American Express business credit cards, and Visa and Mastercard small business credit cards.
What changes when you apply as an LLC?
When you operate as an LLC, your business is seen as a separate legal entity from you, which can provide you with personal liability protection. Applying for a card as an LLC is a great way to build your business credit profile. If you’ve already established business credit prior to applying for a business credit card, you may be approved for a higher limit than if you don’t have any business credit and apply as a sole proprietor. And when it comes to early-stage founders, having access to more funding is always useful.
There are some key changes to know about when applying for a business credit card for a sole proprietor versus an LLC. As an LLC, you are required to provide your EIN and your SSN, in addition to articles of organization. You may also need to submit your operating agreement. You may still have to provide a personal guarantee when getting a business credit card as well.
Key differences between applying as a sole proprietor vs. LLC
Let’s take a detailed look at the relationship between your business structure and your business credit card eligibility. This way, you can make the right choice for your company’s future.
Sole Proprietorship | LLC | |
|---|---|---|
Eligibility | No need for a legally formed business Freelancers, gig workers, and side-hustlers are all eligible | Must have a legally formed business |
Documentation needed |
|
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Credit building potential | Lenders rely on personal credit history, but you do have potential to slowly build business credit | Higher potential to build separate business credit, but lenders may rely on your personal credit history early on |
Legal protections | No legal protections | LLC is seen as a separate legal entity |
Personal guarantee | Yes | Often yes |
Credit limit potential | Lower limits based on personal credit history and income | Higher credit limits based on business credit history |
Best for | Early-stage founders, solo entrepreneurs, consultants, freelancers, or gig workers | Businesses planning to scale, raise capital, or hire employees |
Should you form an LLC first?
You may be considering forming an LLC, then applying for a business credit card. While this route is a good option for many growing businesses, it’s not right for everyone.
You should consider forming an LLC if you:
- Want to build business credit from day 0 (with the right habits in place around spend and timely payments)
- Want to build stronger credibility with lenders and business partners
- Want to separate your personal and business assets and liability
- Plan to hire employees or contractors
- Plan to raise capital
- Plan to scale your business
However, if you’re still validating your business idea or have little to no revenue, then sticking to sole proprietorship may be the best route to take. This approach also works for those who don’t plan to hire any employees, don’t need to separate their business as a legal entity, and want to avoid the costs of forming an LLC.
Smart business credit card tips (no matter the entity type)
Regardless of whether you choose to go ahead with a sole proprietorship business credit card or form an LLC first, it’s important to follow best practices for using a business credit card. Keep these tips in mind to be smart with your money.
1. Keep your business and personal expenses separate
Avoid the urge to put personal expenses on your business credit card and vice versa. This creates clean financial separation, which simplifies bookkeeping and month end. It also helps you build a clean business credit profile.
2. Avoid unnecessary credit pulls
Be selective and strategic about when you apply for credit. Every time a lender does a hard inquiry on your credit report, it can impact your credit score. Don’t apply for multiple business credit cards in a short span of time.
3. Set up systems that help you build credit, not chaos
Streamline your operations by setting up automatic payments. Categorize each credit card transaction on a daily or weekly basis instead of waiting for tax time. Remember to review your monthly statements in a timely manner to catch overspending or fraud.
Mercury: Every early-stage founder’s ally
Getting a business off the ground is complicated enough. When it comes to banking and business credit cards, founders should be able to start simple and scale smoothly.
With simplified banking setup for both sole proprietors and LLCs, Mercury transforms how you operate your company. Business checking and savings, treasury, and working capital loans offer new founders opportunities to scale, while our business credit card, IO, builds your credit — with the right spending and timely payment habits — with no personal guarantees required.
Plus, we offer helpful resources for incorporation and credit management, so you’re never left in the dark or confused about how to take your business to the next level.
Supporting founders from the first dollar onward
Whether you’re a sole proprietor or you’ve already set up an LLC, the right credit card can help you operate with confidence — and reach your business goals faster.
Mercury supports founders from the first dollar onward with the IO business credit card:
- Unlimited 1.5% cashback
- No personal guarantee
- No minimum balance
- No separate application
- Spend management tools that scale with your business
Learn more about IO, the business credit card for sole proprietors and LLCs that want to scale.
