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How do business credit cards work?
Just like regular cards. Business credit cards have an unsecured credit line with a pre-determined credit limit, and your purchase balances are due at the end of each month. You'll also be charged interest. In fact, most business credit cards charge as much or more interest than regular cards do.
But business credit cards have great features and benefits too: points rewards, insurance coverage, discounts, and cash-flow management tools. You can also add authorized users to them, which is useful if you need to issue credit cards to employees.
If you use them responsibly, business credit cards can also help you boost your credit score. After all, business credit cards rely on your personal credit, not your small business's credit. The flipside is that you'll be personally responsible for the debts on the card, so if your business falls behind on its payments, the delinquency will show up on your credit report.
Business credit cards look like regular cards. In most cases, both the name of the credit card holder, who's often also the owner of the business, and the name of the business itself will appear on the card.
Who should apply for a business credit card?
A business credit card is perfect for you if you own a small- to medium-sized business, and you need to charge expenses and manage/analyze cash flow on a monthly basis.
How do I apply for a business credit card?
The process is similar to the process of applying for a personal credit card. For starters, you can apply online or over the phone. If you apply over the phone, an application specialist will guide you through the process and answer your questions.
When you apply for a business credit card, you need to have this information handy: your name, business's name, date of birth, and place of residence. Business credit card issuers may also ask for your social insurance number, business number, and driver's licence information.
What's the difference between a business credit card and a personal credit card?
They work in similar ways, but there are a few key differences between personal and business credit cards.
- Business credit cards often have higher credit limits than personal credit cards do. Businesses usually need to charge more to their credit cards each month, especially when there are multiple cardholders on the account.
- Business credit cards offer perks and rewards that cater to small business owners. Examples of perks include disability plans for small business employees, financial management features, and optional insurance plans. In fact, the variety of available insurance plans on business cards has grown in the past decade, and it now includes air trip insurance, travel insurance, health and dental protection, critical illness protection, and term life insurance.
What are the advantages of a business credit card?
- You get to keep your personal and business transactions separate. Charging business expenses to your personal credit card seems easy at first, but co-mingling your personal and business transactions can create tax problems. And money management confusion could arise once your business starts incurring major monthly expenses.
- Credit card companies categorize your purchases for you. At the end of the year, your credit card company usually sends you a statement summary and categorizes all your transactions, making year-end itemization easy. Who wants to wade through piles of receipts and statements?
- Business credit cards offer great opportunities for points and cash back. The expenditures on a small business card are often bigger than those on a personal card, so small business owners can quickly rack up lots of rewards points or cash back.
- Business credit cards support multiple cardholders. That means you can issue cards to your employees if they need to charge expenses. This is a favourite feature among business owners. It lets them monitor employees' spending and helps them identify trends and changes in their expenses over time.
Do business credit cards build the business's credit?
In general, the answer is no. Business credit cards rely on the credit standing of the business owner, so they build the owner's credit not the small business's credit. This is a frequently misunderstood aspect of business credit cards. Remember: credit is extended to the person who owns the business, rather than to the business itself.
Once you establish your enterprise over several years, you can use the good credit history you've built with your business credit card to apply for a corporate credit card.
What's the difference between a business credit card and a corporate credit card?
In general, business credit cards are preferable for smaller businesses or entrepreneurs who are just starting out
- Corporate credit cards are for larger, more established businesses. Credit can be extended to the company independent of the business owner.
- With a corporate credit card, the business owner isn't directly liable for debts put on the card's account. This is the preferable option if your company has a lot of employees and a lot of credit cards under the company name.
- In Canada, a corporation generally has to have a minimum of $5 million in annual sales to qualify for a corporate credit card.
- Most corporate credit card issuers require the business to share its detailed financial statements plus a formal breakdown of the business's assets/liabilities and ownership structure. Most banks issue corporate cards through their commercial lending division rather than through their consumer division.
- You can apply for a business credit card online or over the phone. As long as you have decent credit, you'll be approved for a business credit card within a few days.
What drawbacks do business credit cards have?
- Business credit cards don't come in a low interest variety. Many business credit cards carry a standard interest rate of 19.99%, but rates can also go as high as 30% depending on the card.
- Business credit cards often have high annual fees. These fees usually range from $100 to $399. Think big fees and high interest rates in exchange for big features and benefits.
- The business owner is personally responsible for the debts on a business credit card account. Delinquencies and late payments will be recorded on your credit report, even if the charges were incurred by an employee.
How do I decide which business card to get?
Reflect on the spending patterns at your company and pick a card that fits your needs. Do you make frequent business trips or attend faraway conferences? Maybe a travel rewards business card is right for you.
Do you want to squeeze extra value out of your business expenditures? Try a cash back card. Consider the insurance benefits on different business credit cards too. This feature is usually a huge selling point for business owners.
What should I watch out for when it comes to my business credit card?
- Business credit cards require a good credit score, so fix blemishes or errors on your report before you apply. Get a credit report to see how your credit score is holding up. You can get a free copy from two of Canada's major credit-reporting agencies, Equifax Canada and TransUnion Canada.
- Make sure you distinguish between low introductory interest rates and permanent interest rates. Many business credit cards offer low rates for the first 6 months or year, but then reset to a higher standard rate. Find out if this is the case for the business credit card you'e interested in. If it is, avoid running a balance after the introductory period.
- Don't apply for too many business credit cards at once. Multiple business card applications will hurt your credit score. Ensure that the card you pick will help you build your credit and aid your business in the long run.
Compare business credit cards today
Finding the right business credit card gives entrepreneurs the freedom to purchase everything they need to make their enterprise thrive.
But these cards are more than a cash flow tool. They give you many special benefits, including travel insurance, preferred rental car rates, higher spending limits, and the ability to support multiple card holders. So whether it's flights, meals, or office supply purchases, a business credit card can handle your expenses with ease.
And LowestRates.ca can help you find the right business credit card. Compare cards and apply today.
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