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Understanding how small business financing impacts tax strategy and preparation is essential for business owners and financial managers seeking to optimize their tax strategy and improve financial planning. Business loans play a critical role in supporting small businesses by providing the necessary capital, but the associated tax implications can be complex.

Some of that complexity comes from different loan product types that a small business may obtain, and whether interest or payments can be deducted from taxes. In this article, we'll cover common business loan types and their tax implications, the criteria for claiming interest tax deductions, business loan payment deductions, and common mistakes to avoid when filing your taxes.

Are business loans taxable?

Business loans are not considered taxable income, because they represent borrowed funds that the business is obligated to repay. When a business receives a loan, the principal of the loan does not count as income for tax purposes, since the amount received isn't earned -- it's borrowed.

However, while the principal is not taxable, the interest paid on the loan might be eligible for tax deductions. Small businesses often deduct interest paid on a loan as a business expense, as long as criteria are met, which we will cover in section 2. By deducting interest payments, businesses can reduce their taxable income, lowering the tax burden.

What types of business financing are considered taxable?

There are situations where business financing becomes taxable income. For example, if a lender forgives or cancels a loan, the amount forgiven could be considered taxable income for the business. A recent example is Paycheck Protection Program (PPP) loans issued during the COVID-19 pandemic.

Many businesses applied for and received loan forgiveness for their PPP loans, becoming eligible to exclude the amount forgiven from taxable income. However, the IRS found recurrent instances where PPP loans were improperly forgiven, because the applicant did not meet the criteria for forgiveness through misrepresentation or omission. Businesses that were found to have improperly forgiven PPP loans were instructed to include the amount forgiven in their income and pay any additional income tax assessed.

Another situation where financing might be considered taxable is if it is used for non-business purposes. In this case, any interest paid on the loan would not be tax deductible and could be subject to taxes. These situations underscore why it is important for businesses to carefully consider tax implications when seeking financing, and ensure they are using funds appropriately, and in line with requirements set by lenders or government programs.

When in doubt, a professional tax filing service can be a big help. Lendio is proud to partner with Taxfyle, a real-time tax filing app that helps small businesses file taxes with the help of a dedicated CPA or EA professional.

Common business loan types and their taxability

Small businesses can find a wealth of loan types to increase their working capital and invest in growing their business. That's why it's essential to understand how each can impact your taxes and overall financial strategy. Below are some common types of small business financing, and considerations for their tax implications.

Business Term Loan

Business term loans are a lump-sum financing payment for small businesses that usually come with a fixed interest rate and repayment schedule over an agreed term. The interest paid on these loans is usually deductible as a business expense, reducing taxable income.

Business Line of Credit

Business lines of credit provide flexible access to capital. Small businesses can borrow as needed, up to a negotiated limit, and interest is paid only on what amount is used. The interest on the amount withdrawn is often deductible, provided it is used for legitimate business purposes.

Equipment Financing

Equipment financing is tied specifically to purchasing or leasing equipment, and the tax implications are two-fold. Both interest paid on the financing and depreciation of the asset may offer tax deductions to the business.

Revenue-Based Financing (BCA/ MCA)

Revenue-based financing, or cash advance, is a more unique form of financing, in that repayment is linked to future sales. Because of this model, these are not technically loans, and the associated fees may not qualify for interest deductions on taxes.

SBA Loans

Small Business Administration (SBA) loans provide favorable terms and low interest rates to borrowers, and these interest payments are generally deductible.

Deducting business loan interest: what's eligible?

An interest tax deduction is a valuable tool for small businesses looking to reduce taxable income. To claim these deductions, it is essential to first understand the criteria set by the IRS.

Conditions for interest payment deductibility

Small businesses can generally deduct some or all of the interest paid or accrued during a tax year on loans. However, you can only deduct the interest if you meet the following criteria:

• You are legally liable for the debt
• Both you and the lender intend the debt to be repaid
• You and the lender have a true debtor-creditor relationship

If you have received business financing and are using it for business-related expenses or purposes, this is fairly straightforward. There are some exceptions where deductibility is concerned to be aware of.

Exceptions to interest deductibility 

Gross Receipts over $29 million

The IRS provides a small business exemption for businesses with average annual gross receipts of $29 million or less over the past three years. If a business has more than $29 million in gross receipts, they may be limited on how many interest deductions they can claim. Form 8990 will help you determine if you must limit your business interest expense deductions and whether your business qualifies to elect out.

Part-Business, Part-Personal Loans

In some cases, a loan may be for both business and personal reasons. A common example is a car loan. If you use the car for business purposes and personal purposes, you can only deduct the interest on the percentage of business use for the car, not on the entire interest of the loan for the year.

Tracking and documenting business financing for taxes

Accurate tracking and documentation of business financing is important for small businesses to maintain, in order to optimize tax deductions and ensure compliance with the IRS. Record-keeping involves maintaining detailed accounts of all loan-related transactions, including:

• Original loan agreement
• Interest payment records
• Correspondence with lenders
• Repayment schedules
• Use of borrowed funds

By keeping these records organized and frequently updated, small businesses work toward managing business taxes well, and substantiate any deduction claims when filing their taxes. It also allows financial planning to maximize the potential for interest and payment deductions, as well as mitigate risks.

Expert tips for optimizing tax efficiency

Tax efficiency should be a goal of small businesses, especially during seasons when margins can be tight. Here are some tips to help you navigate some common financing-related tax mistakes that can affect your financial statements, and make tax season a real headache. 

Common Mistakes to Avoid

1. Misclassifying Expenses

A common mistake small businesses make when filing their taxes is mislabelling expenses, or categorizing them incorrectly. This can cause inaccurate financial records, and potentially disallow tax deductions that could reduce tax burden. The most common misclassification is classifying a personal expense as a business expense. Doing this can cause issues and potential penalties during an IRS audit. 

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Tip: Keep careful records with clear classification of expenses using accounting software or a dedicated financial professional. This will make reducing tax errors easier, and also give you more accurate insights into your operational costs and overall financial health.

2. Not reconciling loan interest correctly

As a practice, small businesses should keep careful records of each interest payment associated with a loan. When records aren’t properly updated or kept, discrepancies may appear on financial statements and in your tax filing, resulting in missing out on eligible deductions or even overpayment. Mismatched records may also be flagged during an IRS audit.

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Tip: Regularly update and review your financial records, particularly where loan interest payments are concerned. This provides clear visibility both for your business, and the IRS.

3. Reporting loan forgiveness incorrectly

If your business receives loan forgiveness, it is important to assess whether it needs to be reported as taxable income. Failing to do this can lead to serious tax implications, including penalties and interest owed. The PPP loan example above is a cautionary tale. Most cases of debt forgiveness or cancellation require you to include the cancelled amount in income, with some exceptions like bankruptcy or insolvency. IRS Publication 4681 offers guidance on canceled debts and exceptions. 

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Tip: Maintain accurate financial records and any correspondence or documents provided by the lender forgiving or cancelling the debt. Consult with a tax professional to determine if your forgiven loan should be reported as taxable income, and ensure compliance with IRS regulations.

Should you work with a tax professional?

Navigating business loan tax implications can be daunting for even the most experienced business owner. A tax professional can be an invaluable resource in optimizing your financial strategies, while ensuring you remain in compliance with IRS regulations.

But keeping a dedicated finance professional on the payroll can be a tough order for small businesses. That’s why services like Taxfyle, Lendio’s trusted partner,  can help small business owners immensely navigate tax filing, especially where business financing comes into play.

Taxfyle connects you to a licensed CPA or EA who will prepare and file your business tax return for you, looking for maximum eligible deductions, qualifying credits and filing with accuracy.

If you’re concerned about the state of your books, Taxfyle’s cleanup bookkeeping will organize your records, fix errors, and get your finances tax-ready before it’s time to file.

Want to learn more about Taxfyle? Visit www.taxfyle.com for more information. Lendio customers can get a discount on business tax filing services. Click here to get your code for 10% off!

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You might be worried your small business may face a huge tax bill, or perhaps you’ve received one already. Either way, if you feel you’re unable to pay your tax bill in full, there are options available to help you manage your tax debt and avoid high-interest penalties. Whether you explore an IRS payment plan, or seek a business loan to cover your tax debt, we’ll discuss your options in this article.

The tax dilemma for small business owners

Approaching tax debt can cause a dilemma for small business finances. On one hand, business owners want to keep their tax bill payments as low as possible to maximize profits, maintain cash flow, and keep growing their business. On the other hand, SMBs also need to ensure they pay off their tax debt quickly to avoid potential penalties from the IRS.

Tax payment options for small businesses

There are a few options to keep in mind when deciding how to pay your tax debt to the IRS. You can opt for an Installment Payment Agreement (IPA) with the IRS. Another option is an Offer in Compromise (OIC) with the IRS, if your business qualifies for the program. A third option is seeking a business loan to cover your tax debt.

IRS payment plan

Most business taxpayers can obtain a long-term payment plan (or installment agreement) from the IRS, as long as they have a total balance less than $25,000 in combined tax, penalties and interest from the current and preceding tax year. With a payment plan, business owners can make monthly payments for up to 24 months on their tax debt. 

Even if you have a payment plan, The IRS assesses interest every day that your payment is overdue. The 2025 rate for underpayment is 7 percent. Since interest compounds daily on IRS payment plans, you could pay much more than you originally owed.

Pros and cons of an IRS payment plan

Offer in compromise 

An offer in compromise is a program offered by the IRS to allow eligible individuals to settle their tax debt for less than the full amount owed. An offer in compromise is most often used when businesses cannot pay their full tax debt, or paying the full debt creates financial hardship.

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Eligibility requirements for an offer in compromise include:

• You’ve filed all required tax returns and made all required estimated payments.
• You aren’t in an open bankruptcy proceeding.
• You have a valid extension for a current year return, if you’re applying for the current year.
• You are an employer and made tax deposits for the current and past 2 quarters.

An offer in compromise application is more likely to be approved when small business owners offer the most the IRS can expect to collect within a reasonable period of time.

Obtaining a business loan for tax payment

A business loan can be a good choice for small business owners facing significant tax payments. While IRS payment plans have pre-set terms, business loans can offer greater flexibility in terms of a repayment schedule. For industries with irregular income streams, a business loan could also allow owners to align the repayment schedule with their cash flow cycles.

When is a business loan better than an IRS payment plan for paying tax debt?

For business owners with strong credit scores, a business loan might offer more favorable terms, such as lower interest rates compared to IRS underpayment penalties and interest rates. Many business loans can also provide immediate access to capital with a lump-sum payment, allowing businesses to take care of their tax obligations promptly, and potentially use additional funds for working capital and other business needs.

Best business loans to pay taxes

When business owners face the burden of paying taxes, assessing the best business loans for the task and their business profile is important. Factors to consider when borrowing are favorable interest rates and flexible repayment schedules, so that businesses can pay off their liability without straining cash flow.

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The length of the application process and approval process with each lender may be especially important too, especially with tax deadlines looming. Before applying for a loan, assess your financing needs, your businesses’ financial health, and IRS requirements for your repayment to determine the right loan option for you.

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Here are some loan options and financing structures that can help you tackle IRS debt repayment while freeing up working capital for your business. The terms and repayment options vary for each type of loan or financing.

*All information included in this article was current on its publication date and is subject to change.

Because business credit cards don’t require collateral and are easy to use and apply for, they’re a very common way for small businesses to secure a boost of funding. If you’ve ever applied for a personal credit card, you know you need to input your Social Security number (SSN), a unique 9-digit number that identifies you as an individual with the United States government, including the Internal Revenue Service.

For small business owners, there are other ways to identify yourself and your business when applying for credit cards—most commonly, businesses have an Employer Identification Number or EIN. You can apply for some corporate business credit cards using an EIN only.

EIN-only Corporate Business Credit Cards

In general, it's rare for individuals to apply for a credit card without providing their Social Security Number (SSN), even if they have an Employer Identification Number (EIN). This is because most credit card companies require a personal guarantee, which necessitates an SSN. 

However, some business credit cards only require an EIN. These are largely corporate cards created for businesses with large revenue streams, where approval is based more on your company's financials rather than your personal credit history.

If your business qualifies, here are some options from Stripe, Brex, and Ramp.

Stripe Corporate Card

This card is only available to current Stripe users who have received an invitation. The credit limit is based on the business's payment processing and bank history. The card comes equipped with custom spend controls, real-time expense reporting, and integrations with Quickbooks and Expensify. Additionally, it offers 1.5% cash back on every business purchase.

Brex Corporate Card

The Brex Corporate Card is designed for startups, e-commerce, and tech companies. It offers higher credit limits, rewards on key business spending categories, and streamlined expense management tools. It doesn't require a personal guarantee or credit check and offers up to 7x points for cash back or credits, depending on the expense type.

Ramp Corporate Card

Ramp offers a charge card for small businesses with unlimited 1.5% cash back. Applying requires no personal credit check or personal guarantee. The card comes with a dashboard for managing expenses and integrates with major accounting software. Ramp will accept applications from any incorporated business in the U.S. with at least $75,000 in a U.S. business bank account.

EIN-only Business Fuel Cards

Fuel cards are another option for companies with large fleets of trucks or equipment, like the transportation and trucking industry.

AtoB

AtoB’s fleet fuel card is accepted at 99% of gas stations nationwide and can be used for expenses beyond fuel such as repairs or road tolls. The card comes with an average fuel discount of 46¢ per gallon on truck diesel. Monthly card fees start at $15. While you only need an EIN to apply, the card will help you build business credit.

Alternatives to EIN-Only Business Credit Cards

If you’re looking for an alternative to a corporate card, or business credit card using only your EIN, the following business credit cards will require a social security number to apply.

Capital One Spark 2% Cash Plus

The Capital One Spark 2% Cash Plus is a straightforward option with 2% cash back on everything you spend. This is a charge card, so the full balance must be paid back in full each month. There is a $150 annual fee that will be refunded if you spend $150,000 or more each year.

Chase Ink Business Cash Credit Card

Featuring no annual fee, the Chase Ink Business Cash Credit Card is a popular option because of its competitive rates of 18.24% to 24.24%* and $750 bonus cash back.

Capital on Tap

Capital on Tap offers up to a $50K credit limit with unlimited 1.5% cash back and no annual fee. They review your credit history but use a soft pull that won’t impact your credit.

Why is a social security number usually required for business credit cards?

In most cases, you’ll have to provide an SSN on a business credit card application—even if you provide an EIN. Because credit cards are unsecured, credit card companies want to ensure someone is liable for the card’s debt, even if a business is dissolved. This personal guarantee is a layer of security for the credit card issuer.

Compare financing options with Lendio.

Lendio simplifies the process of finding the right funding option for your business. Our platform allows you to compare financing options from over 75 lenders, each with unique funding options and requirements. Compare options.

Okay, so you have bad credit or little credit history and you’re trying to open a business credit card account for your small business… Plenty of successful business owners have launched their companies with bad credit. 

Here, we take a look at the best business credit cards for bad credit—factoring in terms, rewards, fees, and availability.

What is a “bad” credit score?

Generally, a FICO score of 670 or above is considered good (or very good, or exceptional, as you get higher). Anything below 670 is generally considered fair or poor. Fair or average credit is typically in the range of 580-669. Anything under 580 is looked at as poor or bad credit.

These are the barometers we’ll use when looking at our list of options below.

What to look for in a business credit card?

Let’s be honest… With bad credit, your rewards and perks likely aren’t going to be great. But that’s okay—it’s all a natural part of building, or rebuilding, your credit.

There are a few key factors to consider when comparing small business credit cards:

• A low annual fee: Look for cards that offer no annual fees or low fees covered by other perks. This bonus can save you a lot of money over time.  
• 0% APR introductory period: This period will prevent you from accruing interest and is a valuable tool if you want to consolidate and eliminate your debt over the course of a year. 
• Specific perks: Decide whether you want cash back, points, or rewards for travel, marketing, or other expenses. 
• Employee access: How can your employees use the card? Will your card provider issue multiple cards for your business?  
• Beneficial reporting: Some credit providers report payments to both commercial and personal credit bureaus. Determine which option is best for building your credit. 
• Consumer protections: Certain consumer protection laws don’t apply to small business credit cards. Consider looking for a card that offers the security you need.

The 5 best business credit cards for bad credit

While shopping for the best business credit card, you’ll find dozens of viable options. However, you need to know what you value and what actually constitutes a good deal. Consider a few of our frequently recommended cards and the bonuses they offer.

Best for poor or bad credit

1. Bank of America: Business Advantage Unlimited Cash Rewards Secured Business Credit Card

Bank of America’s Business Advantage Secured Business Card is made for those looking to establish and build credit.

It’s biggest perk? You gain 1.5% cash back on every purchase, with no annual cap.

Card details:

• $1,000 minimum security deposit
• No annual fee
• 28.49% variable APR
• No introductory APR
• 4% balance transfer fee

See the full breakdown of Bank of America’s Secured Business Credit Card.

2. First National Bank of Omaha: Business Edition® Secured Mastercard® Credit Card

FNBO’s secured business credit card allows you to request any credit limit from $2,000 to $10,000, so long as you provide a deposit of the same amount.

Account details:

• Required security deposit matching credit limit amount
• 25.99% variable APR
• $39 annual fee

See the full breakdown of FNBO’s secured Mastercard.

Best for fair credit

3. Capital One: Spark 1% Classic Credit Card

The lowest threshold of Capital One’s Spark credit card series, the Spark 1% Classic card is another good option for small businesses looking to establish and build credit, and earn cash rewards in the meantime.

For a card like this, you’ll likely need a credit score above 600.

Account details:

• 1% unlimited cash back on all purchases
• 5% cash back on hotels and rental cars booked using Capital One Travel
• 29.99% variable APR
• No annual fee

See the full breakdown of the Capital One Spark 1% Classic credit card.

Best for startups and new small businesses

4. Brex

Brex provides credit cards for startups and growing businesses of varying sizes, and of varying credit scores.

Brex credit cards do not require a personal guarantee to open an account—which companies often do, especially when you have poor or fair credit.

The biggest drawback? In general, Brex requires you to maintain a $25,000 cash balance minimum in order to keep your credit limit active.

Account details:

• 18.49%-26.49% variable APR
• Up to 7x points per dollar on select purchases (1x-7x depending on category)
• No annual fee

See the full breakdown of Brex credit cards.

5. Ramp 

Ramp is similar to Brex in that it serves startups and growing small businesses. It also serves companies with bad credit or no credit.

What makes Ramp unique is that they use your cash on-hand and business revenue as determinants for qualification. There’s no credit score requirements or credit checks.

Ramp is not your traditional credit card—it’s a charge card. While there’s no interest, you are required to pay your monthly balance in full, every month.

Account Details:

• No annual fee
• No late fees
• 1%-5% cashback on select purchases
• Requires $50,000 cash balance to qualify

Is a business credit card worth it?

In many ways, a business credit card operates like a personal credit card. 

So then, you might read this and think, “if I have bad credit or no credit history… should I build (or rebuild) my credit with a personal account first and open a business account later, or just open a business account?

In most cases, you’ll still benefit from opening a business credit card, even when you have bad credit. Many of the benefits remain the same, regardless of what your credit score is.

Benefits of business credit cards

There are several benefits of opening a business credit card, including:

1. It is easier to qualify for a business credit card.

Credit cards are typically easier to secure than loan funding. While lending marketplaces like Lendio can help you find a small business loan than meets your needs, some lenders are warier of people with bad credit. With a small business credit card, you can get approved faster, though your spending limit might be lower or your interest rate higher. These caveats help the credit provider mitigate the risk of offering credit to someone with a lower credit score. 

2. Business cards typically have higher limits.

If you are worried about a low spending limit with your business card, evaluate your company profits and assets before applying for a card. Many business credit cards have higher spending limits than personal cards because they are based on a company’s assets and revenue. This spending flexibility makes it more useful to business owners, especially those who need to pay vendors or make large purchases. 

3. Business credit cards help you build up credit.

Having a credit card is an important tool for building up bad credit. Within 30 days, you have an opportunity to show credit providers that you can repay your debts. By continuously paying your debts over time, you can heal your credit and start to qualify for more favorable card terms and business loans in the future. 

4. These cards have valuable rewards and incentives.

Like personal credit cards, business cards offer incentives to get people to sign up. You might be able to find a card that offers cash back on your purchases to help you save (and to make paying off your balance easier) or a card that helps you build travel rewards for when you attend client meetings in a different state. These earned rewards are unique to credit cards and don’t come with other loan types.

5. Bookkeeping is easier around tax time.

Tax season is typically incredibly frustrating for small business owners. You need to sort through hundreds of expenses, invoices, and charges for the deductions you deserve. A business credit card can simplify this process. If you centralize your spending in one place—your business credit card—then you can quickly organize all your expenses and streamline your tax filing.

It can feel overwhelming to try and open a new credit card when you have bad credit. But the good thing to know is, there are always options for building and rebuilding your credit.

It doesn’t matter whether you operate a B2C retail location or a B2B consulting company, customers tend to like flexibility when it comes to paying, which often means paying on credit. 

A merchant account can give you the tools needed to accept and reconcile different types of payments more efficiently.

Merchant accounts can often get confused with payment processing—which is only part of the merchant process. Here, we’ll break down what a merchant account is, how it works, and how you can apply for one today.

What is a merchant account?

Merchant accounts are specific accounts that give small businesses the ability to accept various customer payment methods more easily—most often debit and credit card payments.

With a merchant account, you can accept different types of credit cards and digital payments without managing multiple accounts across different payment methods. 

Merchant accounts are run by merchant-acquiring banks that handle communication and transactions between customers and businesses.

A merchant account itself is not a transaction account

As a business owner, you won’t have direct access to the funds in your merchant account. You won’t be able to withdraw or deposit money. However, the merchant account will deposit money into your bank account—usually within 48 hours after the charges occur.

Think of your merchant account provider as a facilitator between credit card companies and your bank. 

The merchant services provider will streamline your fee payments and customer charges so your finances stay organized for easier bookkeeping—and so you don’t have to manage all the heavy lifting. 

Merchant accounts and merchant services aren’t always the same thing

It’s important to note that merchant accounts are not always synonymous with merchant services.

Square, one of the more notable names in the merchant space, does not provide a proper full-service merchant account. 

While many of the functionalities are the same, Square is more specifically a payment service provider.

How does a merchant account work?

Credit card usage is actually quite complex when you view it from the position of the business.  Here’s what happens when a customer charges a card to your business:

1. Your business communicates the customer’s card information with the merchant bank. 
2. The merchant bank then contacts the card processor and the card issuer.
3. The card issuer runs through a series of approval checks (like fund availability) and security reviews. 
4. Once reviewed, the approval is sent back to the merchant bank. 
5. The merchant bank authorizes the transaction and releases the funds to the business.  

While this process seems complex, modern technology has sped up the process to happen in a matter of seconds. 

During each step of the process, the business will accrue various processing fees and costs. 

Your merchant account allows for all of this, and more, to be taken care of in one place, instead of you having to accept payment from customers and then pay back fees, declined payments, and other corrections later.

How does pricing work for a Merchant Account?

As you research merchant service providers, you may encounter different business models and payment structures. 

There are two common ways to pay for merchant account services:

1. Flat Pricing

With this option, you’ll pay the same amount on every transaction. This typically exists as a percentage of the whole, plus an added fee. 

For example, you can expect to pay between 1.7% and 3% plus a $0.25 fee per transaction. 

If a customer makes a $100 order and you have a 2% fee agreement plus $0.25, then you would pay $2.25 to your merchant provider (each time that happens). 

Flat pricing is the easiest to calculate—it’s also beneficial if you don’t expect your charges to fluctuate much within a set range.  

Flat-rate pricing may not always be the best option for high-volume businesses, as it can get expensive over time.

2. Interchange Pricing

With interchange pricing, your business pays different rates depending on the type of cardused by the customer. 

For example, MasterCard charges different rates than American Express, who charges different rates than Visa, and so on.

Consider how certain businesses don’t accept certain credit providers. That’s likely because they want to accept higher fees associated with those brands.  

Some merchants offer hybrid payment structures including both flat and interchange pricing—though this is much less common.

What Fees Will You Pay With a Merchant Account? 

Transaction fees are only one part of the cost associated with a merchant account. Additional fees and costs might include:

• Assessment fees: Established to create fraud checks and prevent false charges. These typically range from 0.13%–0.15% per transaction.
• Monthly or annual fees: Charged as flat rates for using the service. 
• Statement fees: Created to cover the costs of printing and mailing your business statements. These can be avoided by using online statements.
• Retrieval requests: For when customers dispute or cancel orders. If the merchant services team or credit company needs to review a purchase, then you’ll be charged a fee for their investigation. 
• Set up and admin fees: One-time or periodic charges for service installation and software/product updates.
• Termination fees: If you decide to break your contract early, you’ll likely be charged early termination fees.

Some of these fees are standard within the industry and can’t be avoided. 

However, you may encounter some new fees that seem to lack any purpose or benefit to you. If you think you are being overcharged, it may be time to reconsider your merchant account provider.

How do you get a merchant account?

Applying for a merchant account is similar to opening a bank account or working with a credit card provider. 

You’ll need to provide documentation related to your business and work through an approval process.

Merchant service companies take on risks by working with your company and therefore need to carry out an underwriting process, to ensure you’ll cover any lost costs in case of hardship. 

To open your merchant account, you will file an application with a provider—in most cases, this can be done online.

What you’ll need for your merchant account application:

• A registered business
• An Employer Identification Number (EIN) 
• Business bank account details
• Financial statements (bank statements, tax returns) 
• Up-to-date business licenses
• Your contact information and home address
• Your social security number

Like in any underwriting process, the merchant account provider will review your forms and ask for any supplemental information as needed. The greater the perceived risk, the more information the underwriter will need. 

Once your application is approved, you can begin your working relationship with your merchant services provider. 

The process can be done in a few days if you are a lower-risk business, though it typically takes a bit longer—and can take several weeks for high-risk businesses.

Learning ways to grow your business

In the first few years of your business, you’re typically focused on infrastructure and foundation-building. You’ll set up various processes to make your bookkeeping easier and customer service better. 

A merchant account is a great way to save time and process credit card payments more easily and accurately. 

To learn more about establishing your business and growing your sales, Lendio has a comprehensive resource center that covers everything from filing business taxes to optimizing your profit margin.

Business credit cards can be an excellent tool to finance your small business. 

But should you open a new business credit card? Is now the right time? Would it be better to wait or look for other forms of financing?

In this article, we’ll cover when you should (and shouldn’t) apply for a business credit card, the benefits of doing so, and how you can prepare to apply.

Why get a business credit card?

The short answer: Because it allows you to reap cash rewards, travel, hospitality, and dining benefits, and future credit priorities simply by spending money you were going to spend anyway.

Now, that is assuming you have certain elements in place (which we’ll touch on later). 

In most cases, though, a credit card can help you manage day-to-day expenses while boosting your working capital.

Benefits Of Business Credit Cards

Regardless of the size of your business, there are many benefits to having and using a business credit card.

1. Higher spending limits

Many business cards have credit limits of $50,000 or more—typically much more than what you’ll get with a personal credit card.

Large costs can arise unexpectedly—having a high spending limit means you’re ready for those costs when they come.

2. Business perks and rewards

Many creditors offer attractive perks that can help you pay for travel expenses and business supplies, while earning cash back and potentially building airline miles.

Different business cards offer different reward packages, so do your research before applying. Some cards cater rewards more towards travel, while others will cater more towards ongoing business expenses or cash-back rewards.

3. Separate and categorize expenses

Many business credit cards offer detailed monthly and quarterly expense tracking. This saves a significant amount of time during tax season.

Instead of pouring through receipts to organize and categorize expenditures, you’ll be able to rely on credit statements for easier spend tracking, by category.

You can also separate your personal and business expenses, which makes for easier tracking, but also protects your personal assets from creditors.

4. Boost and build your credit score

As with any credit card, when you make payments on time, your credit rating improves quickly. 

Building business credit is crucial to qualifying for better rates and terms on business loans. The better the credit score, the better the loan offers you’ll receive.

Whether you have no credit, bad credit, or good credit, using a business credit card can help you continue to build a more positive credit profile and boost your credit score.

5. Monitor employee spending

Most business credit cards allow you to issue employee cards with limits (that you set).

This allows you to delegate spending processes and approvals more easily while monitoring how your team is using their employee cards.

What is a business credit card used for?

You can use a business credit card to finance just about any business-related expense. Typically, business cards are best suited for ongoing, necessary expenses, (hopefully) not too large in size.

For example, you could use your card to:

• Finance inventory or equipment
• Invest in marketing
• Take clients out to lunch
• Pay for flights and event expenses

When NOT to get a business credit card

1. To pay off another credit card

You don’t want to secure a credit card to pay off another credit card—that’s a recipe for disaster. 

Only apply for a business credit card if you have the means to pay it off every month. 

Extra working capital is excellent for your business, but it can cause a major catastrophe if you begin piling on the credit card interest.

2. To make a large one-time purchase

If you need funds for a big one-time investment, it’s better to use other financing options like a term loan, a line of credit, or equipment financing. 

Your credit score will be negatively impacted if you continue to use the majority of your credit limit, demonstrating to lenders that you’re operating to the extent of your means.

Credit cards are great for taking care of small, ongoing expenses. There may be times where you need to use credit to cover unexpected costs, but ideally when you have an established card already. We do not recommend applying for a business credit card if your sole purpose is to cover a large one-time payment.

How to apply for a business credit card

The application process for a business credit card is similar to applying for a personal credit card—you’ll just need a bit of extra information to describe your business.

What do you need to apply?

• A good credit score—while not completely necessary—is certainly beneficial. If you still haven’t formulated how you plan to use your business credit card, you may benefit from using a personal card in the interim to build your credit score before applying.
• Proof of identity. Prepare to present your social security number or Taxpayer Identification Number (TIN).
• Personal information: Name, address, date of birth, income, and other general information will be required.
• Business information: Business type, industry, time in business, contact info, company size, balance sheet data (revenue and expenses), and tax information (if different from personal).

When should you apply?

There’s no one-size-fits-all all answer to this question, but generally, you want to be in one or multiple of the following situations before you consider applying for a new business credit card:

• You have predictable revenue
• You have consistent spending plans
• Expenses are in control
• Your personal credit is better than fair

What to consider when applying for your business credit card

Different cards have varying annual fees, interest rates, credit limits, and eligibility requirements—it’s best to do your homework before choosing one.

Here are a few important elements to consider when evaluating your options:

• Bonuses and Rewards: Many of the best credit cards offer introductory interest-free periods and ongoing rewards. You can earn everything from cash back to free flyer miles. Choose a card with easy-to-use rewards—if you’re not planning on doing any travel soon, look for cards that offer cash-back rewards, software discounts, or expense benefits on food and other necessities.
• Annual Percentage Rate (APR): The card’s APR shows how much you’ll owe if you carry a balance past the payment period. 
• Minimum Payment: If you can’t pay off your card’s balance each month, you’ll need to make at least the minimum payment. This minimum could be a fixed amount or a percentage of the remaining balance.
• Foreign Transaction Fee: If you’re using your card abroad, you’ll have to pay foreign transaction fees. These are usually around 2–3%, but some credit card issuers will sneak in higher rates—so do your research if you plan to travel.

So should you open a new business credit card? It depends. If you need additional working capital and can pay off your cards each month responsibly, then by all means—go right ahead. However, if you’re looking for another business credit card to help with your current debt issues, it’s best to look for a fix elsewhere.

If you choose to open a new business card, let us help. Fill out our 15-minute application to access card offers. You’ll get to see which cards you qualify for before choosing the one you need.After choosing your card, you can get approved the same day. Get started now.

Starting and growing a small business is no easy feat, especially for minority entrepreneurs who often face additional barriers. Thankfully, a wealth of grant opportunities are designed specifically to support minority-owned businesses. Here are 29 grants that can provide the funding you need to take your business to the next level.

1. Grants.gov

Grants.gov is the go-to portal for information on federal grants offered by various agencies. With over 1,000 grants from 26 agencies, this platform provides a comprehensive database tailored to small businesses, including those owned by minorities. To apply, you'll need a DUNS number and must register to do business with the federal government. It's a bit of legwork, but the potential rewards make it worthwhile.

Learn more

2. The National Association for the Self-Employed (NASE) Growth Grants Program

NASE offers $4,000 micro-grants to help entrepreneurs expand their businesses. Membership in NASE is required, and applications must clearly outline how the grant will meet specific business needs, such as hiring help or purchasing equipment. New grantees are selected monthly, so there are multiple opportunities to apply.

Learn more

3. Small Business Innovation Research (SBIR) and Small Business Technology Transfer (SBTT)

These grants target small businesses in research or technology fields. Though competitive, the substantial rewards offer between $300,000 and $2 million for research and development. Federal agencies with research and development budgets that exceed $100 million are required to allocate a percentage of that budget for these grants.

Learn more

4. FedEx Small Business Grant Contest

Although highly competitive, the FedEx Small Business Grant Contest awards one $50,000 grand prize and nine $20,000 prizes to small businesses annually. To qualify, businesses must have a valid FedEx shipping account with a FedEx shipping account number and have no more than 99 employees.

Learn more

5. Community Programs to Improve Minority Health Grant Program

This program focuses on improving minority health through community-based initiatives. Grants are awarded to projects that address health disparities and promote wellness, making it ideal for businesses in the health sector.

Learn more

6. Asian Women Giving Circle

This grant supports Asian American women-led projects that use arts and culture to bring about social change. The grants typically range from $5,000 to $10,000 and are awarded annually. To be eligible for the Asian Women Giving Circle Grant, applicants must meet the following criteria:

• The project must be led by an Asian American woman.
• The project should utilize arts and culture to bring about social change.
• Applicants must be based in New York City.

Learn more.

7. BeyGOOD x Cécred Salon Business Grant Program

The BeyGOOD x Cécred Salon Business Grant Program is dedicated to empowering Black-owned small businesses, especially those in the beauty and wellness industries. In collaboration with the National Minority Supplier Development Council (NMSDC), this initiative provides $10,000 grants to support business growth or recovery. Each year, 20 grants are awarded to deserving businesses. To qualify, applicants must own a salon or a related business, be majority Black-owned, and demonstrate a genuine need for the funds. 

Learn more

8. SBA 8(a) Business Development Program

The Small Business Administration’s 8(a) program helps minority-owned businesses gain access to federal contracts. It offers a variety of developmental assistance, including management and technical guidance.

Learn more

9. NuLeaf Project

The NuLeaf Project offers a range of grants and loans designed to assist cannabis business owners from communities disproportionately impacted by cannabis prohibition.

• Grants: NuLeaf provides grants to cannabis businesses within the state of Oregon, focusing on operational costs, licensing fees, and business development.
• Loans: In addition to grants, NuLeaf offers 0%-interest and low-interest loans. No-interest loans are only available to businesses in Portland, OR. Low-interest loans are available to businesses in Oregon, Colorado, and select Northeast states.

Learn more.

10. Glossier Grant Initiative

The Glossier Grant Initiative aims to support Black-owned beauty businesses by providing crucial funding and exposure. Each year, Glossier selects a group of recipients to receive monetary grants ranging from $10,000 to $50,000.  Applicants must demonstrate a clear vision for their business and how the grant will be utilized to accelerate growth.

Learn more.

11. National Black MBA Pitch Challenge

This pitch competition encourages members to create scalable startups. Finalists compete for prizes up to $50,000 at the NBMBAA’s annual conference. There’s also a People’s Choice Award with a $1,000 prize. Details for the 2024 pitch challenge have not yet been announced.

Learn more

12. San Diego Black Chamber of Commerce Grants

The San Diego Black Chamber of Commerce offers grants to businesses completing its free development courses. 2024 course schedules have not yet been announced.

 Learn more

13. Wish Local Empowerment Program

The Wish Local Empowerment Program provides grants to small, minority-owned businesses, offering amounts up to $2,000 to support operational costs and growth initiatives. To be eligible, companies must meet specific criteria, including being registered in the Wish Local app, having 20 or fewer employees, and being Black-owned. The program aims to help local businesses expand their reach and improve their services by providing needed financial assistance.

 Learn more.

14. Freed Fellowship Grant

The Freed Fellowship offers grants to small businesses needing financial support to grow. They give one $500 grant every month and one $2500 grant at the end of each year.

Learn more

15. HerRise Microgrant

HerRise offers $1000 microgrants to women of color entrepreneurs. Grants are intended to support business growth and development, and applications are open on a rolling basis.

To be eligible for the HerRise microgrant, applicants must be women of color entrepreneurs with less than $1 million in gross revenue.

Learn more

16. CCWC Women of Color Grant Program

The Corporate Counsel Women of Color Grant Program offers $2,500 grants to women of color entrepreneurs. The grant is available to any for-profit business with at least $25,000 in sales.

Learn more

17. Backing the B.A.R. Grant

An NAACP initiative, this $10,000 grant supports Black-owned businesses in the food and beverage industry. Grants are awarded to businesses with a liquor license or currently seeking a liquor license. Applicants are evaluated based on their demonstrated need for funds, proposed use of funds, and commitment to the community.

 Learn more

18. AAPIStrong Restaurant Fund

This fund supports Asian American and Pacific Islander-owned restaurants. 170 grants are awarded ranging from $5,000 to $25,000. To be eligible the restaurant must be currently operational, operate in a single location, cannot be a franchise, and demonstrate financial need.

 Learn more

19. Galaxy Grants

Galaxy Grant offers a $3750 grant to women and minority entrepreneurs.

Learn more

20. The Transform Business Grant

This grant supports businesses owned by systemically marginalized groups committed to social change. The grantee receives a $1,000 microgrant and a business strategy and development program. Applications are reviewed regularly, and grants are awarded to businesses demonstrating significant potential for positive impact.

Learn more

21. National Black Business Pitch

This competition encourages Black entrepreneurs to pitch their business ideas for a chance to win one of three $10,000 cash prizes.

Learn more

22. Black Ambition Prize

The Black Ambition Prize awards grants to Black and Latinx entrepreneurs. Prizes range from $10,000 to $1 million, depending on the business’s stage and potential impact. Businesses are awarded in exchange for a simple agreement for future equity instruments, giving Black Ambition a small equity stake in the winning firm.

Learn more

23. The Greenhouse Accelerator Program Juntos Crecemos Edition

This program offers financial and mentorship support to Latinx-owned businesses that create snack or beverage products influenced by Hispanic culture. Each finalist is awarded $20,000 with the winner receiving an additional $100,000.

Learn more

24. Founders First Regional Grants

Founders First Regional Grants are designed to support small businesses in specific regions across the United States. These grants are typically awarded to underrepresented business owners, including those from minority backgrounds, veterans, and women. The grant amounts range from $5,000 to $25,000, depending on the business’s specific needs and proposed impact within its community. Applications are reviewed based on the business’s potential to drive economic growth and create job opportunities in underserved regions.

Grants are available in several regions, including:

• California
• Texas
• Nevada
• Pennsylvania
• Illinois

To qualify for a Founders First Regional Grant, businesses must meet the following criteria:

• Be located in one of the eligible regions.
• Demonstrate a commitment to creating quality jobs within their community.
• Be a for-profit entity.
• Have annual revenues between $50,000 and $5 million.
• Be majority-owned by veterans, minorities, or women.

Learn more.

25. Black Girl Ventures Pitch Program

This program supports Black and Brown women entrepreneurs through pitch competitions and financial support.

During the Black Girl Ventures Pitch Program, winners can receive prizes to support their entrepreneurial journey. The top prize includes $10,000 and crucial resources like business mentorship, access to professional networks, and media exposure.

Prospective participants must submit an online application detailing their business model, mission, and the impact they hope to achieve. Once the applications are reviewed, selected entrepreneurs move forward to the pitch sessions. 

Learn more  

26. Breakthrough Program

The Breakthrough Program offers grants of up to $50,000 to minority-owned businesses that are developing innovative solutions in technology, healthcare, and clean energy sectors. To qualify for this grant, applicants must meet the following criteria:

• Minority Ownership: Businesses must be at least 51% owned by individuals from minority groups.
• Innovative Projects: The project should focus on innovative solutions that have the potential to make a significant impact in their respective industry.
• Location: Companies must be based in the United States.
• Financial Need: Applicants must demonstrate a clear financial need for the grant to further their development efforts.

Learn more

27. Restaurant Business Development Grant Program

   Feed the Soul Foundation offers grants to Black-owned restaurants needing financial support for development. Grants are awarded based on need and potential for growth.

The Restaurant Business Development Grant Program offers grants ranging from $5,000 to $25,000, focusing primarily on Black-owned restaurants. To qualify for this grant, applicants must meet the following criteria:

• Ownership: The restaurant must be at least 51% Black-owned.
• Location: The business must be based in the United States.
• Financial Need: Applicants should demonstrate a clear need for the grant funds to support development and growth.
• Potential for Growth: Businesses must show the potential for significant growth and a positive impact on the community.

Learn more

28. Coalition to Back Black Businesses

   This initiative offers grants to Black-owned businesses across various industries. Grants are awarded based on demonstrated need and potential impact.

Grants awarded through the Coalition to Back Black Businesses range from $5,000 to $25,000, depending on the specific needs and potential impact of the applicant. To qualify for a grant, businesses must meet the following criteria:

• Ownership: The business must be at least 51% Black-owned.
• Location: The business must operate in the United States.
• Need and Impact: Applicants should demonstrate a clear financial need for the grant and outline how the funds will significantly impact their business and community.

Learn more.

29. NAACP Grants

The NAACP offers a variety of grants to support Black-owned businesses. Grants are awarded based on need and potential for community impact.

Here are some of the grants offered by the NAACP:

NAACP and Leslie's Inc. Certification Boost Grant

The NAACP in partnership with Leslie's Inc. offers the Certification Boost Grant to support Black-owned businesses seeking industry certifications. This grant aims to alleviate the financial burdens associated with obtaining the necessary certifications to help businesses expand and thrive. 

Keep It Local Business Fund:

This fund, a collaboration between Nextdoor and the NAACP, is designed to support Black-owned small businesses in economically vulnerable communities. Grants of $5,000 are awarded to businesses that demonstrate a commitment to community and local economic impact. Eligible companies must be majority Black-owned and operate within the United States.

Power Forward Small Business Grant:

The Power Forward Small Business Grant program supports Black-owned businesses in New England. Sponsored by Vistaprint and the Boston Celtics, grants of up to $25,000 are available to businesses that exhibit a potential for growth and community development. Applicants must be majority Black-owned and based in the New England area.

For more information and to apply, visit the NAACP Grants page.

Small business funding for minority entrepreneurs.

Lendio works with a marketplace of 75+ lenders to match small business owners with small business financing. Learn more about business loans for minorities. 

What’s the difference between cash flow and profit? 

As a business owner, these two terms can feel interchangeable. But the truth is, they’re far from it—and knowing when to prioritize one over the other can help you make better strategic decisions in that moment.

What is cash flow?

Whether you’re just starting a business or have an established brand, you’ll feel the effects of cash flow similarly. Cash flow is simply the movement of liquid money (cash) in and out of your business at a specific point in time.

When you execute a business transaction and receive money, that’s an inflow of cash. When you spend money on inventory, bills, or other expenses, that’s an outflow of cash. As you track the movement (flow) of cash in and out of your business, you’ll find that you are either operating:

If you have positive cash flow, you have enough cash to cover your financial obligations. If you’re operating with negative cash flow, you are not bringing in enough cash to cover your current expenses and will likely need additional business financing to continue running at your current pace.

What is profit?

Profit refers to the remaining revenue after all expenses are paid. If you have a positive value after subtracting total expenses from total revenue, then you’re profitable. If you have a negative value, you’re spending more than you’re making over that timeframe and are operating with a loss.

Profit can be used in many ways. You can distribute profit to other owners or shareholders, invest it back into the business, or save it in a reserve fund in case of emergency.

For many small businesses, profitability fluctuates throughout the year. Take toy and hobby retailers, for example, which arguably see the bulk of their sales in the final quarter of each year. This imbalance creates cyclical ebbs and flows of profitability, which can be misleading without the proper context.

What’s the difference between profit and cash flow?

Cash flow and profit are just two of many financial metrics business owners and investors use to assess the health of a company. Both measurements have their own advantages and disadvantages, and it’s up to you to understand how to use each to make better strategic decisions.

However, the difference between profit and cash flow can be tricky to grasp because they both relate to the balance of money within your business. Complicating the matter further, businesses can actually operate with a positive cash flow without being profitable—and may be profitable with a negative cash flow.

Timing is the subtle difference that needs to be considered when comparing cash flow to profit.

Cash flow focuses on the past, looking at the actual money that has come in or left your business at a specific point in time. Profit looks at the past, present, and future of your business and includes liabilities like accounts receivables and long-term debt, which are expected expenses or future cash.

For example, if you sell an item on credit, you don’t actually have the cash on hand—it’s an account receivable, which still needs to be collected. However, it’s considered revenue because the liability of payment has passed on to your customer, and it is used to measure profitability.

On the other hand, cash flow will only measure money that comes in and leaves your business. As a result, it won’t recognize that transaction until the cash is received from the credit purchase.

When to prioritize cash flow vs. profit.

Cash flow and profit both have their purposes as financial metrics, and business owners would be wise to measure and analyze each ongoingly and for different scenarios.  

For example, if you want to have an overarching view of your business and its long-term viability, profit can shed more insight than cash flow because it takes a holistic view of your income and financial obligations. However, if you want to see a snapshot of your financial efficiencies at a specific point in time, cash flow may give you more perspective because it’s focused more on your day-to-day operations.

Cash flow or profit: What’s more important?

Cash flow and profit are both important, and business owners and investors may focus on each at different times and for specific reasons. Determining whether profit or cash flow is more important will be based on your unique situation.

Understanding the relationship between cash flow and profit can help you identify when to look at one or the other. This insight alone will put you in a better position to make the right decisions to guide your business forward.