MashBlur

A recent survey by seven Federal Reserve Banks showed a whopping 72 percent of business owners who apply for a traditional loan get turned down. That’s right -- seventy-two percent.

When you consider the critical role that small business plays in the U.S. economy, that number seems insane. One of the most common reasons given for loan denial was insufficient personal and business credit scores.

Sadly, this doesn’t come as much of a surprise. I’ve talked to hundreds of small business owners, from tech entrepreneurs to pizza shop owners, and very few understood how business credit works. Many of them didn’t even know it existed until it adversely affected their business plans.

One of the simplest and smartest ways to establish a positive business credit history is by using a business credit card. Like a personal credit card, a business credit card offers you a revolving line of credit with a set credit limit. This means that as soon as you pay it off, you can use it again (unlike a business loan, which requires a new application for each new loan).

Let’s take a closer look at a few of the advantages that business credit cards have brought my way during almost two decades of entrepreneurship:

Applying for a business credit card is painless compared to applying for a traditional loan or bank line of credit. You won’t need to compile a detailed business plan and years of tax returns and financial statements just to get your foot in the door.

Business credit cards reward you just for using them, and you can tailor these rewards to fit the needs of your business. Spend a lot of time on airplanes? Choose a plan that rewards your spending with miles, and offers free hotel upgrades and discounts on rental cars for frequent flyers.

Business cards typically have significantly higher credit limits than personal credit cards, which means you can increase your company’s purchasing power and make serious investments without dipping into your ready money.

A business credit card helps you keep the books with meticulous online monthly and quarterly expense tracking. Most provide you with annual spending reports that you can download straight into your accounting software. Business credit cards are also a convenient way to simplify your taxes, saving you the hassle of combing through your receipts in order to separate business and personal expenses.

A business credit card is considerably less risky than a large lump sum from a bank or alternative lender. The credit will be available again the minute you pay it off, you won’t have to put up valuable assets as security and you don’t actually borrow the money until you spend it.

One of the biggest mistakes new business owners make is using personal credit cards to finance their business when starting out. This can kill your personal credit scores and leave you with nothing if your business doesn’t succeed.

Keeping a business credit card means having an extra source of cash if you get in a tight spot. Cash advances usually mean an increase in interest and fees, however, so be careful about how often you use them.

Some business credit cards allow you to add employee credit cards with preset spending limits. Either way, a business credit card is an easy way to monitor employee spending.

Do your homework before you start applying for business credit cards. Closely compare the perks, interest rates and grace periods of each card before finalizing your decision. Keep in mind that you can limit your personal risk even further by choosing a business credit card that doesn’t report to the consumer credit bureaus. That way, if your business hits a rough patch, you can max out your credit cards without taking a hit on your personal credit score.

Finally, keep in mind that most small business credit cards ask for apersonal guarantee -- if you rack up sizable charges and find that your business can’t cover them, you’re personally on the hook. So make your payments on time, and do what you can to maintain a low balance on the card. These simple steps will yield big rewards as you build your business credit with an eye to the future.