Lending Library

Small businesses play a vital role in the economy, accounting for a significant portion of job creation and economic growth. However, starting and running a small business can be challenging, with numerous factors impacting success. By understanding the latest trends and insights on small business statistics, entrepreneurs and business owners can gain valuable insights into the current state of the small business landscape and develop effective strategies to thrive. 

In this blog post, we will explore key statistics on small businesses, including sentiment, funding sources, and common challenges.

Growth and revenue

Small business growth and revenue statistics.

• There are 33.3 million small businesses in the United States.
• 5.5 million new business applications were filed in 2023 continuing a surge in small business growth since the pandemic. (U.S. Census Bureau)
• Small businesses make up 99% of all U.S. companies.
• Small businesses employ 61.6 million people and nearly 46% of all private-sector workers.
• Small businesses saw a gross revenue of $13.3 trillion annually.
• The number of businesses owned by Black, Hispanic, and Asian Americans has increased by more than 50% from 2007 to 2020.
• The most common industries to start a business include retail, professional services, and construction.

Small business owners

Who owns small businesses?

• 63% of employer firms are owned by men.
• In total, women own 13.8 million businesses employing 10 million workers and generating $3.9 trillion in revenue across the U.S. 
• There are an estimated 3.7 million Black-owned businesses in the United States and an estimated 161,422 Black-owned businesses with at least one employee in the United States.
• Veterans own 8.1% of businesses. (SBA)
  

Small business sentiment

Small business owners’ sentiment statistics.

• 49% of small business owners believe it’s somewhat or much harder to achieve the dream of owning a small business than in the past. 33% of SMB owners believe it is somewhat or much easier. 19% say it’s about the same.
• 89% of small business owners believe it’s possible to attain the goal of owning your own business.
• The Mid-Atlantic region (New York, New Jersey, and Pennsylvania) had the most positive sentiment toward being able to start a business, with 96% of respondents believing it’s possible.
• The East South Central region (Kentucky, Tennessee, Alabama, and Mississippi) had the most negative sentiment, with 30% of respondents stating they didn’t believe it was possible to obtain the goal of owning their own business. 

Source: Lendio

Small business challenges

Small business owners’ challenges statistics.

• 41% of small business owners state their number one challenge is related to the economy and inflation, with another 14% struggling most with financial concerns.
• Hiring remains the No. 1 challenge for 11% of small business owners, while COVID recovery vexes 4.5% of business owners and supply chain issues 3.4% of SMB owners.
• 56% of small businesses state that large corporations have a negative impact on growth opportunities for their businesses.

• 66% of small business owners state having a financial safety net would have had the most impact on their ability to start a business, followed by access to capital at 53%. 
• 24.2% of new businesses fail within the first year. (BLS)
• Of the respondents, 52% state that living in an area with lower business costs and a lower cost of living would be helpful. 44% state lower taxes would have a positive impact. 
• 33% state more customers and resources, 26% state less cultural bias, and 32% state access to educational resources and guidance would have had an impact on their ability to start a business.

Source: Lendio

Small business funding

Small business funding statistics.

• 54% of SMB owners started their business with personal funds, with another 12% relying on friends and family. 14% used a bank loan, 3% an online lender, 3% venture capital, 3% crowdfunding, and 4% credit cards.
• 79% of SMB owners needed less than $100,000 to start their business, while 43% needed less than $10,000.
• The average loan amount for a small business owner is $47,000.*
• A small business has a median of five employees when it is first funded by an outside lender.*
• A small business has been in business for about three years (a median of 40 months) when it is first funded by an outside lender.*
• Minorities received 32% of SBA 7(a) loans and 30% of SBA 504 loans in 2023.

*Based on internal Lendio data of 300,000+ loans funded since 2013.

Source: Lendio

Generational differences

Small business owner generational differences statistics.

• Those under the age of 45 report needing more money to start their business, with 23% needing $100K to $250K. In contrast, only 10% of those aged 45+ needed that amount.
• While both generations rely heavily on personal funds to start their businesses, those under the age of 45 have started to turn to alternative sources, such as crowdfunding (6%) and online lenders (5%).

• 46% of younger business owners (18-44) believe owning a small business is somewhat or much easier to achieve. 
• 58% of older business owners (45+) believe owning a small business is somewhat or much harder to achieve.
• While a large majority (71%) of SMB owners aged 18-44 believe large corporations have a negative impact on growth opportunities for their business, 57% of those 45+ disagree, stating large corporations don’t have a negative impact on their business.
• While the generations agree that a financial safety net, access to capital, and low costs are most critical to success, those 44 and younger place greater importance on access to educational resources and see cultural bias as a larger inhibitor. 
• Both generations agree that the freedom to live how you want is the most important component of the American dream. Perhaps unsurprisingly, those 45+ place greater importance on retirement (46%), while those under 45 place more importance on becoming wealthy (36%).

Source: Lendio

One of the most important questions you need to answer as a small business owner is whether you should incorporate your business—and if so, how. 

Here, we’ll explore why you would want to incorporate your business, and how to do so, with helpful links to resources across different U.S. states.

About business incorporation

What does “incorporated” mean? 

It’s the process of converting a sole proprietorship or general partnership into a separate entity in the eyes of the law (i.e. the state you're operating in) and the public. 

In other words, by incorporating your business, it becomes a separate legal entity from you, the business owner, or any other individual involved.

Is incorporation right for you?

The setup itself involves fees and plenty of hoop jumping. More importantly, it introduces extra guardrails and responsibilities for your business. The benefits, however, often outweigh these costs.

“The first thing you’ll need to consider before incorporating is whether structuring your business as a corporation is the best way to serve your vision for your company,” explains a business structure analysis from Forbes. “There are 4 major business structures available to you. Have you carefully considered the pros and cons of each? Corporate structure is attractive if you’re interested in issuing shares in your business, you are anticipating a rapid and far-reaching expansion of your enterprise, and/or your vision is best served by a rigid managerial hierarchy.”

What are your business goals? Keep them in mind as you read through the rest of this post. It’ll help you gauge whether you should incorporate, or go with another structure such as a partnership or a limited partnership.

That brings us to our next question: If you are planning on incorporating your business, should you classify it as an S corp or a C corp?

S corp vs. C corp

When incorporating your business, you can do so as an S Corporation or a Corporation.

A C corp is the more standard incorporation, while an S corp comes with specific tax advantages. C corps pay corporate-level federal taxes, while S corps do not—their taxes are instead passed down to shareholders.

That is the primary difference between S and C corps—how they are taxed.

When determining which is better for you, there are two main factors to keep in mind:

• S corps come with more tax advantages for small businesses, but with that, come with more limitations.
• Owners of a C corp are subject to double taxation (at the corporate level and then at the personal income level) but come with no limitations.

If you own a small business and don't see it growing beyond 100 shareholders, an S corp is likely the right option.

If you're fond of catering to unlimited growth, a C corp is likely the better option.Thomson Reuters provides an in-depth breakdown of S and C corp pros and cons to help you determine which is right for your business.

How to incorporate a small business

If you decide that incorporation is your best route, you’ll need to follow a strict process to make it happen. There is no universal checklist available, as the details vary from state to state. But here are some of the key steps that nearly all entrepreneurs will need to accomplish in order to become the proud owner of an incorporated business.

1. Choose a Business Name

It’s essential to find a name that isn’t just memorable and effective, but available. Visit your state’s online database to make sure that your preferred name hasn’t already been taken. Review the U.S. Patent and Trademark database as well to check on any overlapping trademarks.
Typically, you can search your state, plus either “business entity search” or “corporation search,” and you’ll find the necessary search tool to look up existing businesses in your state.

Example corporation search pages:

• Delaware corporation search
• Florida corporation search
• California corporation search
• PA corporation search
• Illinois corporation search
• Texas corporation search
• New York corporation search
• MA Corporation search
• Utah business entity search

2. Set up governing documents

This step is where you create the road map for how your business will handle its business. You often aren’t required to submit these documents to the state, but they’re essential when it comes to things like handling profits or navigating disputes.

You can pay an attorney to help with your governing documents, but the most cost-effective route is to use one of the free bylaw templates that you can find online.

3. Make it official with paperwork 

Here’s where you let the state know what you want your business to be called, as well as contextual information such as the business’s purpose, directors, officers, and mailing address.

Most states allow you to file your articles of incorporation online. You can also print off hard copies and then submit them by mail, but this approach will always take longer. Once everything has been reviewed and approved, you’ll receive a confirmation from the state that your business is now its own legal entity.

Similar to an entity search, you can simply search your state, plus “articles of incorporation,” and you’ll find the documentation you need.

Articles of incorporation by state:

• California articles of incorporation
• Illinois articles of incorporation
• Texas articles of incorporation
• Florida articles of incorporation
• PA articles of incorporation
• Georgia articles of incorporation
• New York articles of incorporation

4. Gather for a meeting 

Once your articles of incorporation have been approved, you must hold a formal meeting. A top priority of this event is to record information on how your business was funded. This means the names of each person must be written down and the percentage of their ownership noted.

Be sure that you don’t conclude the meeting without also getting everyone to sign the business’s bylaws. If you have any resolutions to bring to the group, this is also the time to get them approved.

5. Secure an EIN 

Even if your business has no employees, it likely needs an Employee Identification Number (EIN). You can learn more about EIN requirements and easily apply for your own by visiting this application page created by the IRS.

As mentioned earlier, your state may have some other unique requirements for incorporation. But once you’ve completed these 5 steps, you’ll be ready to start enjoying the benefits of incorporation.

The benefits of incorporating your small business

Let’s look at some of the primary perks of incorporating your small business:

Protecting your personal assets 

Since your business is declared as its own legal entity, your personal assets are protected in the case of any legal or financial issues. If assets were to be claimed at any point, it would only be the business’ assets, not the owner’s.

Establishing business credit 

There’s now a clear delineation between your personal finances and business finances. That separation helps your business begin its own credit history rather than being attached to your personal credit history.

Raising capital easier 

You’ll be able to issue shares of company stock to potential investors that you otherwise wouldn’t have access to as a sole proprietorship. Also, banks typically prefer to lend to an incorporated company over sole proprietors.

Building credibility with customers and community 

Say you did business with a company and they needed to give you a check. You look at that check and see that it’s from the CEO’s personal account and bears their personal information. How professional do you think that company is now? When you incorporate your business, you’re proving your credibility and professionalism as a business entity—and communicating your business intentions, even if in a non-direct way.

Incorporation can lead to success

Taking the time to incorporate your business could help you immensely in the long run. Weigh your options and then take the necessary steps to become the type of business you want to be. It may take some time and effort to complete the process, but you’ll be glad you did.

Business loans are crucial for helping small businesses thrive by providing the necessary capital to cover startup costs, invest in inventory, or upgrade equipment. For many small business owners, these loans are not just a means to an end; they are a lifeline that enables them to seize growth opportunities and navigate the challenges that come their way. Therefore, it is vital to understand the current lending landscape that small businesses are facing.

Key stats.

• 68% of small business owners say access to financing is the most important factor in the growth of their businesses.
• 67% of small business owners have no preference about which type of lender they get a loan from.
• 85% of small business owners said that speed to loan approval is important when selecting a lender. 
• 77% of small business owners surveyed stated that they prefer to apply for a loan online or via a mobile app.
• 50% of small businesses say they don't know if the bank they use for checking has the right loan options for them. 
• Only 24% of small business owners apply through the bank they already work with.
• The average small business loan is $38,000.
• 59% of SBA loans are approved.

High-level overview.

Lendio recently surveyed 1000+ small business owners to better understand how financing affects the success of their business, their experience in today's lending environment, and how they view the future of small business lending. Of those small business owners, 68% said that access to financing is the most important factor in the growth of their businesses. Additionally, 46% of those 1000+ small business owners said they would see anywhere from 30-100% revenue growth if they had access to financing their business needs.

Lendio found that 78% of the small businesses it interviewed have a positive outlook on their ability to access capital in the next year. Perceptions vary based on how well-qualified the small business is for a loan. Only 12% of the most qualified borrowers stated that the majority of small businesses don't have access to the capital they need while 21% of the least qualified borrowers said the same.

Lendio found that while small business owners generally have a positive outlook on their ability to access capital, they have a fairly neutral perception of the loan application process. When asked which type of lender they'd prefer 67% of small business owners said they have no preference.

The takeaway:

85%

of small business owners say speed to loan approval is important when selecting a lender.

While larger enterprises are willing to experience lengthy loan approval and funding processes, small business owners behave more like consumers--they prefer a quick and easy loan process. 

• 85% of small business owners said that speed to loan approval is important when selecting a lender. 
• 77% of small business owners surveyed stated that they prefer to apply for a loan online or via a mobile app.

Lendio also found a general lack of awareness of the small business loan process. 

• 50% of small businesses say they don't know if the bank they use for checking has the right loan options for them. 
• Only 24% of small business owners apply through the bank they already work with. 
• Lendio found that 22% of small business owners either don’t know or don’t have a preference for their preferred type of business financing.

These findings point toward a need for more education about the lending landscape for small business owners.

Average business loan amount.

Understanding the average loan amounts small businesses receive is critical for entrepreneurs seeking to plan their financial strategies effectively. Businesses should be aware of not only the amounts they might qualify for but also how these figures align with their growth aspirations and operational needs. 

• The average amount a small business receives through Lendio’s marketplace is $38,000. 
• The average SBA loan amount in 2023 was $479,685.
• On average, small businesses are offered 50% of the loan amount they initially asked for.

SBA loan approval rates.

The Small Business Administration (SBA) plays a vital role in supporting small businesses by providing access to loans with favorable terms. In 2023, approximately 59% of SBA loans were approved (34% received full approval, 25% received partial approval), indicating that over half of small business owners successfully navigate the application process. This is particularly encouraging for entrepreneurs who might face challenges securing traditional financing, as SBA loans often come with lower interest rates and longer repayment terms.

Reasons for a business loan.

Lendio found that the majority of small businesses pursue loans for a variety of essential reasons, primarily to secure working capital (33%) to support daily operations and manage cash flow. Additionally, small businesses often seek financing for crucial investments like equipment purchases (19%), expansion efforts (15%), starting a business (14%), payroll (6%), real estate (4%), or for other purposes (9%). Each of these reasons highlights the integral role that loans play in facilitating growth and sustainability in the competitive business landscape.

Gender insights

Men and women generally had similar responses to Lendio's survey questions, but a few differences stood out.

Only 46% of women are positive or very positive that they can access the capital they need compared to 55.8% of men who said the same. 13% of women also rated their ability to access the capital they need as "very poor" compared to 9% of men.

Another key insight points to a need for education surrounding the business lending landscape, especially for women. 53.3% of women and 41.7% of men are unsure of their primary bank's loan options. More women business owners stated that they would like education on the business loan application process across the board except interest rates (this was equal). This includes lender types, loan agreements, and loan types.

Women-owned businesses received just 32.6% of approvals and 28.4% of the dollars offered in SBA 7(a) and 504 loans in the 2024 fiscal year. Across the lending landscape as a whole, women are less likely to receive the full amount of funds requested. In 2023, 45% of women-owned businesses were approved for the full amount of capital requested vs. 55% of men-owned businesses.

Additionally, 25% of women are denied a business loan compared to 19% of men.

Minority insights

When it comes to accessing business loans and receiving funding, entrepreneurs of color can face significant challenges.

• 84% of businesses started by a person of color relied on personal savings or funding from friends or family to fund their businesses. 
• 28% of employer businesses started by a person of color have obtained a business loan compared to 48% of white-owned business startups.
• Nearly half of black business owners who apply for a loan are denied.

Conclusion

Understanding the lending landscape for small businesses is crucial for their growth and success. The statistics presented highlight the significant role that access to financing plays in empowering entrepreneurs across the United States. While optimism prevails among small business owners regarding their ability to secure capital, challenges persist, particularly for women, minority, and veteran entrepreneurs.

As a record number of businesses opened last year, Lendio reveals the top states to start a small business. 

2023 was a record-breaking year for small businesses as a record-breaking 5.5 million new business applications were filed in 2023, according to the Small Business Administration.

The 2020s have been one of the most challenging historical decades for small business owners. The economic impact of the global pandemic continues to ripple through the American and global economies. Inflation, high interest rates, and the unprecedented migration of educated workers to new locations have been just a few of the challenges that small businesses face. Amid such paradigm shifts in how—and where—Americans work and live, Lendio commissioned this study to see the state of the small business landscape across the country.

Key Findings

We explored trends in ten metrics that are critical to the success of small business owners in 2024’s rapidly changing and uncertain landscape. These metrics included small business lending, cost of living, real estate data, educated worker migration, corporate tax rates, state-level incentives for business owners, and more. Our key findings include:

• Top states – Florida, Texas, and North Carolina rank top in our list due to lower taxes, an influx of movers to these states, sufficient business funding, and higher amounts of personal consumption expenditures.
• Bottom states – Hawaii, New Hampshire, and Nebraska are the bottom three states, due to low business funding and venture capital availability, limited local incentive programs, high tax rates, and high cost of living.  
• Ranking shifts – While the states that made the top 10 stayed the same from Lendio’s 2023 analysis, there were some shifts in the line-up including Florida edging out Texas for the top spot.
• Ranking factors – The states that rank highest are those that experienced large influxes of migration, with reasonable costs of living. The availability of business funding, venture capital, and local incentive programs were also important factors that impacted the rankings. 

Top 10 best states to start a small business.

10. Oklahoma (Previously 7)

This state boasts some of the most favorable local incentives in the country for business owners, with 84 inventive programs in total. Housing prices and cost of living are lower, compared to other states. Combined with a low, 4% corporate income tax rate, this creates an environment many entrepreneurs will find attractive. On the flip side, businesses in Oklahoma have lower-than-average access to capital and have seen a decline in educated workers moving to that state.

9. Utah (Previously 10)

Businesses in the state of Utah have exceptional access to capital. Utah is approved for the highest number of SBA loans per 100,000 population in the U.S. It also had $10,000 in VC funding per $1 million GDP, ranking No.10 in the U.S. in 2023. The state also has a lower corporate tax rate of 5% and offers 34 tax incentives to small businesses. The reason Utah did not rank higher on our list is that it has become an increasingly popular destination, and as a result, housing costs have increased significantly.

8. Massachusetts (Previously 4)

It’s no wonder tech-savvy Massachusetts gets the most amount of venture capital disbursed per $1 million of GDP, ranking No. 1 in the U.S. The state offers 73 different incentives for business owners. Massachusetts businesses also have one of the highest five-year survival rates of 57%. On the flip side, it has one of the highest median housing values in the U.S., and it is seeing more people leaving (57,000)—rather than moving to—the Bay State.

7. Georgia (Previously 9)

Georgia is also a great place for businesses, as it is within the top states with the most small business loans approved—over 30 small business loans per 100,000 residents through Lendio’s marketplace. Georgia has seen an influx of 81,406 people move in, making it the sixth-best state in this crucial category. Although the housing prices remain reasonable, Georgia has the second-highest growth in cost of living. 

6. Ohio (Previously 3)

Ohio has no corporate income tax rate. Even with the state’s gross receipt tax rate, which is not strictly comparable to the corporate income tax rate, it’s still considered a low-tax state. Ohio is also among the top states that have small business loans approved per 100k residents. With very low housing costs and good local incentive programs for businesses, Ohio is a good place for small businesses to settle. 

5. South Carolina (Previously 8)

Half of all startups in the Palmetto State have survived at least five years, and the state government offers 77 different incentives for small business owners—only three states offer more incentives than South Carolina. The state has a low 5% corporate income tax rate. In addition, housing prices and cost of living are among the lowest of all states, and 84,030 people moved in in 2022, making it the 4th-hottest place to relocate. 

4. Colorado (Previously 6)

If you are in Colorado, you may have a good chance to land a small business loan. Colorado ranks No. 7 in the U.S. for issuance of small business loans, with 27 small business loans per 100,000 residents. It also has the 7th highest amount of venture capital per $1 million GDP. With 55,768 educated workers moving here and a 4% corporate income tax rate, business owners can find a good place to start a small business. 

3. North Carolina (Previously 5)

North Carolina has been a hot place for in-migration, with 99,796 people relocating there in 2022 (the 3rd highest in the U.S.). Businesses here have an above-average, five-year survival rate. The state also has a low corporate tax rate of 2.5% and above-average access to business loans. With low housing costs, business owners find it an attractive location to start and run a small business. 

2. Texas (Previously 1)

Texas ranks as the second-best state for small businesses. While Texans receive a lower amount of SBA loan approvals/100K residents than other states, they were the 7th highest state for loans offered through Lendio’s marketplace. Of all businesses started in 2017 in the state, more than half survived five years of operations, outlasting those in many other states. According to Census Bureau data, over 400,000 people with at least some college education moved into Texas in 2022, making it a prime location for educated entrepreneurs to spread their wings. Beyond just workers, Texas has become one of the most popular places for Americans to relocate—thanks, in part, to its lack of a state income tax.

1. Florida (Previously 2)

Florida is the best state to start a business due to a low corporate tax rate (5.5%) and the mass migration of consumers and companies to the state. The Sunshine State sees more than half of its startup businesses survive for at least five years. It’s also a top recipient of SBA loan dollars (12th compared to other states) and ranked 2nd for the number of loan offers facilitated through Lendio’s marketplace.

Final Thoughts

The state where your business operates has a direct impact on your ability to effectively run your company. As an entrepreneur, you get to decide which of these factors matters most to you. 

Florida consistently performed in the top tier for business owners, earning it a No. 1 spot for its top small business loan dollars, mass migrations of educated workers and consumers, and reasonable tax rates. Meanwhile, Nebraska, New Hampshire, and Hawaii ranked last, in part because of their high costs of living and housing, fewer incentive programs for businesses, and fewer workers with bachelor’s degrees than many other states.

Wherever you work, each state presents opportunities and challenges. Navigate those factors successfully and you can run a competitive, impactful business. Do the right research. Decide which criteria matter most. Make sure you’ve got the capital to build your dreams. Then take on calculated risk to start something great with products and services that benefit all of us.

Methodology

We used publicly available data from a variety of federal government and nonprofit sources to identify the best and worst states for small businesses in 2024. We used a Z-score distribution to scale each metric relative to the mean across all 50 states. Outliers were reduced to a score of 2 or -2. Overall, we examined ten factors including: 

Sources:

• Venture capital disbursed per $1 million of GDP, 2022 (National Science Foundation). 
• Five-year startup survival rate from 2018-2023 (Bureau of Labor Statistics)
• Small business loans, 2023 (7a and 504 loans). (Small Business Administration)
• Small business financing offers through Lendio’s marketplace Q3 2023-Q2 2024. 
• Small business incentives, 2023 (Council for Community and Economic Research)
• Corporate income tax rates calculated as an average across tiers, 2024 (Tax Foundation)
• Educated Worker Mobility, 2022 (Census Bureau)
• Hottest relocation markets, 2022 (Census Bureau via National Association of Realtors)
• Personal consumption expenditures, 2021-2022 (Bureau of Economic Analysis)
• Median housing value of owner-occupied housing units, 2022 (Census Bureau) 

Note: In addition to regular income taxes, many states impose other taxes on corporations, such as gross receipts taxes and franchise taxes. Some states also impose an alternative minimum tax and special rates on financial institutions. Nevada, Ohio, Texas, and Washington do not have a corporate income tax but do have a gross receipts tax with rates not strictly comparable to corporate income tax rates. 

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.

Multiple studies have found that small business owners are happier—and healthier—than traditional employees. Being your own boss can be stressful at times, but many people find the process to be exhilarating and more rewarding. 

The truth is, though, there are always going to be challenges to starting a new business—especially in your first year of operation. Here, we’ll highlight the common challenges you need to be aware of when starting a business, and how to best prepare for them. 

Common challenges of starting a business you should prepare for

There are a variety of intimate details across funding, taxes, profitability, and sellability, that you won’t be able to truly grasp until you’re in the throes of running your business—since they require deep, timely context to do so.

Once the ball is rolling, you’ll need to prepare to face the following.

1. Having enough funding to maintain and grow operations

Securing capital is one of the biggest challenges for new business owners.

For many business owners, the need for cash is a catch-22: you need money to pay for equipment and inventory, but you can’t make money without the equipment and inventory. As a result, would-be entrepreneurs turn to various funding methods to get the capital needed to cover expenses until they start generating revenue from the business itself. 

You have multiple options available as you seek funding for your business. Each of these options comes with different pros and cons depending on your budget and goals for growth. 

• Seek a business loan. If you lack the needed funds to start your business, work with a financial institution to secure a business loan. You can work with these creditors on a reasonable monthly payment plan with flexible interest rates and terms. Lendio curates multiple loan types for business owners to review and apply for.
• Work with private investors. Angel investors and venture capitalists are always looking for the “next great idea.” Some investors won’t expect payment for a few years as your business grows, giving you the flexibility you need to spend money. However, they may want regular reports on your performance and can also request a say in the decision-making process because of their shareholder status. 
• Bootstrap your business. Bootstrapping occurs when you pull funds from your own pocket to start a business and operate that company as lean as possible. With this type of funding, you won’t have additional fees or interest to repay—but few people have the liquid capital on hand to cover all of their costs for the first few years. 
• Crowdfund from the community. Crowdfunding has become increasingly popular to raise money for your business. With this model, dozens of people from the community donate to your business idea. You can either pay these people back or offer discounts for donors who support your company.  

You’ll likely need a combination of options to fund your business. For example, you may start by self-funding the business and reaching out to friends, family, and colleagues to become private investors over time. 

Once you’ve established some fluid business, you can begin exploring small business loans and private investors to fuel more accelerated growth.

2. Creating a Realistic Operating Budget

It’s estimated that 82% of businesses fail due to poor cash management—so take a proactive approach to managing your money within your first year. 

Creating and sticking with a budget is an important step. This process includes not just setting a budget, but also understanding when you need to adjust your spending.

The first thing to do: get organized. Ensure that you have a process for tracking your expenses and labeling each purchase so you can sort through them later. (This will also be immensely helpful during tax season.) Once you have transparency, you can start adjusting your levers and setting budget goals and expense expectations. 

Developing a business operating budget isn’t that much different from managing your personal expenses. If you want to save money, you review where your income goes and learn what can be cut and what needs to stay.

One thing to keep in mind during this budget development process: your priorities and needs are going to change. You’ll need to spend more, for example, during peak seasons to advertise more or scale inventory. That’s okay, for now.

If developing and managing a budget still feels intimidating, consider consulting with an accountant or looking into budgeting software. 

3. Paying taxes accurately and strategically

Filing taxes is a source of stress for many Americans, even those who have full-time employment with a single company. 

Some people are afraid of underpaying and being audited, while others feel confused by the IRS verbiage—so they rush through their forms or hand off their documents to an accountant. 

As you launch your small business, taxes will become more important—and more complex. You’ll have to pay different amounts if you’re self-employed, and you’ll have to maintain a list of deductions to report as business expenses. 

Even when you have these nuances figured out, you may come across other challenges and requirements as you begin to scale and hire employees. 

Tracking deductions is one of the hardest—and most important—steps in tax preparation. The government frequently creates new rules for what can be deducted and by what amount, so it can sometimes feel like trying to hit a moving target. 

However, there are some standard deductions (marketing expenses, insurance costs, education, etc.) that you can write off. As you begin to file your taxes, identify which expenses can qualify as deductions in order to reduce how much you need to pay. 

The good news: if you take time in your first year to categorize your expenses correctly and develop good bookkeeping habits, you can put yourself in a great position for tax season.

4. Optimizing your business for profitability

As you grow your business, you’ll discover that you have multiple levers to pull to increase profitability. You can save money by reducing costs, or you can adjust your products and prices to increase your margins. 

Companies make minor adjustments to their product lines frequently. They debut new items to appeal to customers and change their products to meet customer demand (like fast-food chains going “all-natural”). 

Within the first few months of opening, you may decide that you need to change up your products to help your business succeed. Fortunately, there are many ways to do this. A few options at your disposal include: 

• Eliminating products and services that don’t sell (does your pizza restaurant really need a hamburger on the menu?)
• Eliminating items with low profit margins (high-cost items, products that take a long time to make, or items from vendors with difficult contracts, for example) 
• Launching new items based on trends and customer demand (what brunch restaurant doesn’t offer avocado toast?)
• Creating product bundles to sell high-margin items along with low-margin products
• Negotiating better deals with your vendors to pay less for goods
• Adjusting your materials sourcing and costs to pay less before assembling your products
• Investing in technology to speed up the production process and scale your abilities 

As you can see, many factors affect the profitability of your business. You have the final price that you list your product to sell but also the costs of labor and materials to assemble these products. 

Over your first year in business—and likely beyond—you will need to continue to adjust and optimize your products or services, as well as the resources invested in them, to improve your bottom line. This should always be a focal point of your business.

5. Building an effective marketing plan (that’s optimized for long-term)

In the same way that your products and services will likely change as your business grows, so will your marketing strategy. In fact, as you consider how you promote your business, you might develop a 3-part plan: pre-launch, launch, and post-launch/maturation. 

During the pre-launch process, your main focus may be on name recognition and making customers aware that your business exists. 

The goals for your marketing efforts will likely focus on maximizing your reach (getting in front of a large number of people) and connecting with potential customers on social media and via email so you’re top-of-mind when you eventually open.

When your business launches, your marketing goals will change, however. 

Once your business starts to mature and you develop a healthy customer base (typically 6 months to a year in operation), you can adjust your marketing materials for long-term success. At this point, you’ll have accrued some data over time, and be able to start optimizing for your ideal customer profile. 

Your marketing campaigns will then require you striking a balance between retaining the customers you brought in during your launch and encouraging new ones to try your brand. 

Some business owners seek marketing firms that specialize in business openings and product launches. These experts can make sure your business gets noticed when you open, ensuring that you hit the ground running.

6. Hiring the right employees and growing your team

Once your business starts growing and your customers fall in love with your products, you can start to expand. At this point, you can begin to delegate more and more across every aspect of your business.

It’s during this time that you might considerexpanding your existing staff with new members.

Neil Patel created a useful guide for determining when your company is ready for a new hire. His main indicator: you’ve had to turn down work from customers or can’t fill the existing demand for your products or services. 

Turning down work doesn’t always mean your customer will come back when you’re ready for them. You could lose customers in the long run if you can’t scale your efforts to meet their needs. 

Think about the cost of acquiring a new customer versus retaining one. Once you start limiting your existing customers or turning leads away, your company is losing money while its marketing costs are increasing. Don’t think of your new hire as an additional expense but rather an asset to help you scale. 

Fortunately, there are multiple options for taking on additional talent. You can contract out work until you have enough demand to bring on a full-time employee. You can also take on paid interns to help with basic work and then train them to become staff. Finally, you can hire part-time work with the goal of bringing them on full time once your business grows into it. 

Remember, taking on a new hire isn’t just an expense or opportunity for growth—they’ll also take time from you. You’ll need to train them, manage them, and work alongside them to meet the demand of your customers.

Additional challenges entrepreneurs face

While this guide has covered many of the big obstacles that startup businesses face, you’ll also need to overcome several miscellaneous challenges during your first year. A few common tasks and mishaps that business owners face include:

• Creating company documents and infrastructure. Within the first year, you’ll likely create a company handbook as well as several policies and rules for how your business operates. 
• Investing in the right tools and software. It’s hard to know what’s on the market and able to help you, from choosing a good financial management app to setting up widgets and plug-ins for your website. 
• Finding quality networking opportunities and forming partnerships. It’ll take time to find networking groups within your community that can benefit you. However, once you make these connections, you can grow your business. 
• Developing safety procedures and cybersecurity training. You’ll need to make sure your employees are safe—along with your digital assets and sensitive financial information.   
• Identifying your competitors and your relationship with them. Some companies work well alongside their competition, while others face challenges—and even direct attacks. 
• Establishing a work-life balance. Opening a business is a marathon, not a sprint. Learn how to take time off to recharge so you can move your business forward. 

Each of these challenges can be overcome with creative problem-solving and a determination to move your company forward.

Launching your business with an eagerness to learn

Each new business owner will face unique challenges and roadblocks during the first year. For some people, the idea of managing the company’s ledgers and tax forms is overwhelming. For others, managing employees or handling customer feedback can create stress. 

However, if you can identify and admit what you need to learn, you can take steps to resolve mitigate any risks. The best way to survive your first year in business and to continue growing for years to come is always to be eager to learn—knowing that some of that learning is going to come from making mistakes.