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Not all business owners have employees. Millions don’t, actually. If you consider yourself self-employed, run a side hustle in the evenings or on weekends, or freelance part- or full-time, you can call yourself a business owner.
And not just for pride’s sake. The IRS considers freelancing and side hustling to be legitimate business activities with some of the same tax benefits and obligations as “traditional” business activities pursued by formally incorporated enterprises.
Operating a side hustle or freelance gig as a business brings some other benefits as well. One such benefit is the opportunity — with caveats — to apply for small-business credit cards, for which many micro-entrepreneurs don’t realize they’re eligible. A business credit card is often the best way for freelancers and side hustlers to build business credit before you have significant revenues to report. That’s sure to come in handy if and when you choose to expand.
General Eligibility Requirements for Small-Business Credit Cards
Every credit card issuer holds applicants to specific eligibility standards, and eligibility to apply for a small-business credit card is not a guarantee of issuance. But the fact remains that business credit cards are available to a much wider pool of potential applicants than commonly assumed.
That pool absolutely includes sole proprietors pursuing side hustles in the gig economy and more traditional freelance work on a part- or full-time basis, as well as partners in businesses actively seeking to turn a profit. And it’s not limited to side hustlers and freelancers who’ve been at it for years. Some small-business credit card issuers have no time-in-business requirements at all, meaning they’re open to newly minted entrepreneurs willing to personally guarantee their debts.
These are the most important criteria for determining general eligibility for small-business credit cards.
1. You Intend to Turn a Profit
Not every business is consistently profitable. Try as they might, some operators never manage to earn reportable income after accounting for all expenses.
Fortunately, the credit card issuers don’t penalize businesses simply for losing money. (The IRS may scrutinize money-losing enterprises more closely, raising their tax audit risk — especially if they have unusually high expenses or engage in other eyebrow-raising behaviors. But that’s a separate issue.)
The key test for both credit card issuers and the IRS is that you intend to turn a profit with your side gig or part-time self-employment, whether or not you’re successful in the short or long term. If you don’t intend to turn a profit, you can’t write off your “business” expenses to reduce your federal or state income tax obligation, and you likely won’t qualify for a small-business credit card.
Here’s a simple example of how the distinction might play out for someone screen-printing and selling T-shirts:
- Intending to Turn a Profit: You set up a website with an online shop, or open a store on eBay or Etsy, and market custom T-shirts for sale to the general public.
- Not Intending to Turn a Profit: You order a bulk batch of custom T-shirts, sell them around town or directly to friends and family, and put the proceeds toward travel and equipment expenses for your high schooler’s varsity basketball team.
In the second example, you’re donating any proceeds from your efforts to a third party, giving up any claim to the profit. You’re going above and beyond for your family, to be sure, but you’re not operating a sustainable for-profit business.
2. Your Side Hustle Isn’t Actually a Hobby
Likewise, income-generating hobbies generally don’t meet the “business” test for credit card or tax purposes. But some serious hobbyists can legitimately claim that they intend to turn a profit and business credit card issuers often don’t require applicants to prove that they’ve been in business for any length of time. This means many hobbyists can exploit a loophole whereby they apply for and receive small-business credit cards even if the IRS doesn’t qualify their activities as businesslike at all.
That said, credit card issuers and the IRS are on the same page when it comes to casual hobbyists without significant hobby income.
For example, say you’re an accomplished baker. Every month, you bake 12 dozen cookies and package them by the half-dozen in zip-tie bags. On a first-come, first-serve basis, you sell these bags — 24 in all — at your workplace with your employer’s permission. You always sell out, and at $5 per bag, you gross $120 each time.
That’s a nice bit of pocket change, but it’s not enough to live on, and you’re not making any effort to diversify or expand your baking operation. After factoring in your ingredient costs and the time it takes to bake, package, and sell your cookies, you’re really just subsidizing a baking hobby you’d likely pursue anyway — not running a business.
3. You Have or Plan to Earn Revenue That Can Be Considered Business Income
Even if your efforts are profitable, sustainable, and repeatable, they may not meet the definition of “business activity” in credit card issuers’ eyes.
This issue comes up often for people with substantial passive income streams.
Many lucrative passive income opportunities, such as investments in turnkey real estate through platforms like Roofstock and Acretrader, use formally incorporated business entities (LLCs) to simplify what’s often a complex web of ownership interests and shield investors from legal liability.
As a passive real estate investor, you might technically own stakes in dozens of business entities and share in their profits or losses. But you don’t actively manage those interests and have little real say in how those entities operate. You’re not a “business owner” in the true sense of the term.
On the other hand, if you choose to actively invest in real estate — or help others invest in real estate — by offering your services as a property manager for small-time landlords, you’re engaging in legitimate business activity and are likely to qualify for a small-business credit card.
4. You Have a Social Security Number or Employer Identification Number
Most personal credit cards ask applicants to provide a valid Social Security number (SSN) to complete the initial application process.
Small-business credit cards usually offer applicants a choice. They can provide their Social Security number or an employer identification number (EIN), a unique identifier issued by the IRS for tax administration purposes.
Sole proprietors that haven’t formally incorporated as single-member LLCs or S-corporations don’t need EINs. They can apply for credit cards using their Social Security numbers unless the credit card or issuer specifically requires an EIN with the application.
The government requires any sole proprietor that does formally incorporate their business to apply for an EIN. When applying for a small-business credit card, they can use either their SSN or EIN, although the EIN route is preferable for those aiming to establish and build business credit.
5. You’re Willing to Personally Guarantee Your Charges
If you’re still in the early stages of your side hustle or freelance career, even if you haven’t generated significant cash flow yet, you can apply for any small-business credit card that doesn’t hold applicants to minimum revenue or time-in-business requirements. But because you haven’t built any credit history for your business yet, you’ll need to be willing to personally guarantee charges made on your small-business credit card.
This means the credit card issuer will pull your personal credit report to assess your creditworthiness and may consider your personal income and assets, such as income from a 9-to-5 job and the value of any bank or securities accounts you own. This is standard practice whenever you apply for a personal credit card. But if you’re a new freelancer or side hustler applying for a small-business credit card in part because your personal credit is impaired, don’t be surprised if your application is denied.
6. Possible Caveats and Limitations
Freelancers and side hustlers have plenty of choice in small-business credit cards. Major credit card companies like American Express, JPMorgan Chase, and Capital One all offer business credit cards to new business operators and small-scale freelancers willing to use their personal credit scores in underwriting and personally guarantee their charges moving forward.
That said, the universe of business credit card choices is not quite as broad for freelancers and side hustlers as for established entrepreneurs with robust cash flows and strong business credit. New freelancers and side hustlers are unlikely to qualify for business credit cards that require any of the following:
- Minimum Time in Business. Minimum time-in-business requirements aren’t excessive. One year is typical. But that’s cold comfort to side hustlers and freelancers hoping to build business credit right from the start.
- Minimum Monthly or Annual Revenue. Minimum revenue requirements usually aren’t excessive either, although entrepreneurs with higher revenues do tend to qualify for higher initial credit limits. Still, an annual revenue minimum of $50,000 is still a significant impediment, and possibly a dealbreaker, for a part-time side hustler.
- Established Business Credit (Business Credit Score). Your first business credit card as a freelancer or side hustler will most likely be one that allows (or requires) a personal guarantee. Fortunately, many of the top small business credit cards, such as the Chase Ink Business Cash and American Express Blue Business Cash cards, don’t require a business credit score as a condition of approval.
Likewise, freelancers and side hustlers need to understand the distinction between small-business credit cards and corporate credit cards. The latter type of card is generally reserved for formally incorporated business entities with significant revenues and multiple employees on payroll. American Express corporate cards are simply not an option for the typical freelancer or side hustler, for instance.
More innovative corporate cards offer some leeway. For example, the Brex Card for Startups uses noncredit information like cash flow and assets to assess creditworthiness and make underwriting decisions, leaving the door open for successful sole proprietors able to meet the minimum account balance requirement. The card’s perks and cash-back rewards certainly justify the effort. But most freelancers and side hustlers simply can’t meet its capital requirements.
Why Apply for a Business Credit Card As a Freelancer or Side Hustler?
Because many small-business credit cards accept applications from freelancers and side hustlers, and because the application process itself typically takes just a few minutes of work by the applicant, the benefits of applying seem to far outweigh the downsides.
But that doesn’t mean there are no tradeoffs involved. If you don’t have business credit, the application is likely to involve a hard pull of your personal credit report, which could temporarily reduce your credit score. The idea of personally guaranteeing your business charges is scary, even though it’s really no different than personally guaranteeing your personal charges. And, of course, your credit card application is one more task to fit into your busy personal and professional schedule.
Perhaps a review of the benefits is in order. They include:
- Getting a Head Start on Building Business Credit. For new businesses and smaller enterprises, the best way to build business credit fast is to use a small-business credit card responsibly. You can’t do this if you keep charging business expenses on personal credit cards.
- Separating Business and Personal Expenses for Tax Purposes and Personal Accounting. If you do choose to use a personal credit card for business expenses, you should at least make sure that card is entirely devoted to business expenses. Using the same credit card for both personal and business expenses drastically complicates your own bookkeeping activities and could make it more difficult for you to prove to the IRS that legitimate business expenses were in fact made for business purposes.
- Earning Rewards and Perks Not Available or Common With Personal Credit Cards. Many popular small-business cards, including the American Express family of business cards (The Business Platinum® Card from American Express or American Express® Blue Business Cash Card), offer special perks and benefits not available to consumer cardholders. (Enrollment is required to take advantage of these offers.) Likewise, business credit card rewards programs tend to be structured to reward the sorts of purchases that freelancers and some side hustlers regularly make, such as spending at office supply stores or on telecommunications.
- Mitigating Personal Liability for Business Expenses. Using a business credit card for business expenses only is not a foolproof way to avoid commingling business and personal finances, which can expose you to personal liability for business expenses and activities. You’ll also need a separate business bank account from which you pay your business card expenses, for example. But it’s an important early step.
One of the most compelling reasons for anyone to apply for a small-business credit card is the prospect of qualifying for a generous sign-up bonus — or “welcome offer” or “early spend bonus,” depending on the issuer’s preferred terminology.
Compared with personal credit cards, small-business credit cards tend to offer comparable if not more valuable sign-up bonuses. For freelancers and side hustlers on the fence about whether to bother applying for a new credit card, the promise of a new cardmember bonus worth hundreds of dollars could break the tie. The more difficult question might well end up being which small-business card to choose.
Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.