Should My Nonprofit Apply for a Business Credit Card?
Starting a nonprofit can be very overwhelming, especially when it comes to finances. You have so many decisions to make, oftentimes with a very limited or unreliable revenue stream. One financial decision that most nonprofits make is whether or not to apply for a business credit card. A business credit card can be a huge asset for your nonprofit, but it is also not a decision that you should make lightly. There are many factors to consider, so we decided to go through and explain the ins and outs of everything nonprofit business credit card related in order to help make your decision as smooth as possible.
Which Nonprofits Need a Business Credit Card
Having a business credit card is not the right financial choice for every nonprofit. Applying for a business credit card is the best choice for nonprofits that have frequent outside costs. For example, if your organization throws frequent events that require you to purchase supplies then a business credit card would probably be a good financial decision. With a business credit card, your organization has direct access to money even when you may be falling short on donations or grants. Not only will your organization have easier access to capital, but establishing a line of credit will make your organization more appealing to banks for large loans and to other large corporations for investment opportunities and grants. In addition to that, your organization can benefit from rewards programs that most credit card companies offer such as cashback.
On the other hand, there are certain nonprofits that would not benefit from applying for a business credit card. For example, if your organization functions in a mainly online space, such as through a Facebook page/group, your nonprofit most likely would not have very many outside expenditures. In this case, it does not make financial sense for your nonprofit to pay credit card fees. Additionally, brand new nonprofits may want to become more established before applying for a business credit card. Having a nonprofit business credit card is the most beneficial once your organization has a more stable and reliable donor base.
The Application Process
Once you have decided that applying for a nonprofit business credit card is the best decision for your organization, you may have questions about the application process itself. The process can slightly vary between credit card companies, but there are some constant factors. Firstly, you do usually need both a personal and business credit check in order to apply for a business card. You can also use the personal credit of your executive director or board chair. When you do this, you have to keep in mind that if you present a personal line of credit for your credit check the individual will then be personally liable for the credit of the nonprofit. In order to establish a separate credit history for your nonprofit, you can generate a business credit score through business credit bureaus such as Equifax, Experian, Dun & Bradstreet.
These credit checks are customary for most business credit cards, and they come with certain risks (except for the Charity Charge Business Card of course.) Using your CEO or Board Member’s personal credit makes them the personal guarantor for the credit card. This makes them personally liable for all the nonprofit’s credit. If you are confident in your nonprofit’s financial state and your ability to make timely payments on your card, applying for any nonprofit business credit card with a personal guarantor is a fairly safe decision. But if you are not one hundred percent confident, you may want to look for options that do not require a personal guarantor or wait until you are more financially secure.
Tips and Tricks for Using your Nonprofit Credit Card
Once you have a business credit card for your nonprofit, there are certain precautions you have to take as a 501c3. As a tax-exempt organization, your organization must be extremely cautious with how you use your credit card. Although applying for a nonprofit credit card can pose certain risks to your nonprofit, there are plenty of ways that your organization can take steps to minimize your financial risk. Making sure that your chosen credit card has fraud protection is very important. In addition to having protection provided by your credit card company, you can also take personal steps to prevent fraud. Firstly, it is important to keep all of your credit card information private and limit the number of people who have access to your account number. It is also important to save every receipt and compare them to your monthly statement to manually check for fraud. If you find any evidence of fraud, even if you are not one hundred percent sure, you should contact your credit card company immediately. It is better to be safe than sorry, especially when your 501c3 tax exemption status could be compromised.
Additionally, having an internal chain of command regarding your nonprofit business credit card is a great way to be proactive with your finances. We recommend that your board of directors establishes a clear set of guidelines that outline who has access to the card, spending limits for the card, keeping itemized receipts, and the proper procedure of approving expenses. Also, it is very important to make certain that your business credit card is never being used for personal purchases. Also, having supervision of employee card use is very helpful for keeping a close eye on your credit. By having leadership that can provide oversight, you can prevent personal use on your credit card and implement appropriate punishments for misuse such as revoking credit card privileges. Having these set guidelines in place can help you keep a close eye on your credit history and help you protect your 501c3 tax exemption status.
Overall, applying for a nonprofit business credit card can be a great decision for your organization. Not only is a credit card extremely convenient, but there are also various rewards and benefits that can be great for your nonprofit. But, a nonprofit business credit card is not the correct choice for everyone, especially nonprofits that are still in their financial infancy. Additionally, once you have your nonprofit business credit card there are important steps and precautions you need to take in order to protect both the personal credit of your leadership and the credit history of your organization.
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