How Does a Business Credit Card Work in Canada?

Business credit cards are a great way to manage business expenses and maintain a separate record of business transactions. Are you unsure how a business credit card works? In this article, I am going to give you the details on how business credit cards work in Canada. So please read through to the end and maybe apply for an appropriate business credit card if one offers benefits that match your spending.

What is a business credit card?

A business credit card is simply a credit card that is issued specifically for a business. It is used to charge expenses that are only related to the business. Be it a sole proprietorship, partnership, SME (small and medium enterprise), or corporation, you can apply for a business credit card no matter what your business size or type is. A business credit card helps to keep business expenses separate from personal expenses.

How does a business credit card work?

And now, to answer the real question. The business credit card works exactly like a personal credit card with the exception that the transactions are related to business. You can use it to conduct financial transactions any time you desire. At the end of the month, you will need to pay back the minimum amount or pay in full if you wish to do so. For any outstanding balance that you haven’t paid after the due date, you will be charged interest.

Along with this basic functionality, the business credit card also has a credit limit and features similar to personal credit cards, tailored to the business activities. Let us explore all the features of business credit cards to understand their practical applications.

How to apply for a business credit card?

In Canada, a personal credit card requires a personal credit score and a few personal details. At the same time, a business credit card may require a greater number of documents, depending on the nature of the business. Most small business owners will also be required to share their personal credit score when applying for a business credit card.

For an established business, you will need to share the following documents while applying for the business credit card:

• Business license (in case of a corporation or sole proprietor) or partnership agreement.
• Business financial statement
• Business credit score
• Owner’s details (both personal plus financial)

To find your top contender, check out our Best Business Credit Cards in Canada post.

Features of a business credit card

Most features of business credit cards are similar to those of personal credit cards. Although the terms and conditions might differ. These features can differ from one credit card issuer to another because of different policies, terms, and conditions. So, it is good to verify what policy the credit card issuer is following.

Here are the general features or aspects of business credit cards in Canada:

• Credit limit: The business credit card comes with a credit limit. The credit limit is the maximum amount of money that you can spend on that card without paying it off. Once your balance sits at the credit limit you will either be blocked from spending more or charged a higher rate of interest. The credit limit issued is based on your credit history and credit score. If your credit score is high then you are regarded as a low default risk and credit card issuers will issue you a high credit limit. Whereas if your credit score is low then you will be seen as a high default risk customer and the credit card issuer will issue you a low credit limit. You can use your credit card responsibly to improve your credit history, which will in turn improve your credit score and over time elevate your credit limit.
• Credit card fee: A business credit card might come with an annual fee, although some banks and credit card issuers do offer no-annual-fee business credit cards. Along with this annual fee, some other fees can be imposed on credit card users. For example, you will be charged an additional fee for delayed payment. In addition, you will have to pay fees for taking cash advances, balance transfers, and making foreign transactions.
• Interest rate: The interest rate can vary from bank to bank and also from customer to customer. Some banks or credit card issuers offer a relaxed interest rate to customers with a high credit score, while they charge a high-interest rate to customers with a low credit score. Similarly, the policy is also important as some issuers charge fixed interest rates while others charge prime interest rates.
• Additional credit cards: You can apply for additional credit cards. Some credit card issuers offer free additional credit cards while others may require a fee. In the case of a sole proprietor account, you can apply for an authorized user card. The authorized user is allowed to use the card just like you, without the liability of paying back the debt, so you'd better trust whoever you give a card to.
• Benefits and rewards: Every business credit card comes with a defined set of benefits and rewards. These are the most attractive features of a credit card. In Canada, credit card issuers offer different benefits and rewards as per their policy. This is why while applying for a business credit card you need to see that you apply for a credit card whose rewards and benefits match your particular needs. The usual rewards are in the form of cashback, miles, discounts, travel benefits, car rental benefits, etc. All these benefits are aimed at giving you ease in conducting your business operations.
• Expense monitoring: With business credit cards, you can monitor your monthly expenses to see how much you have spent and where. Expense monitoring is easy in small organizations while it can become tricky to monitor and track expenses in a large organization or corporation. This is where the credit card issuers allow you comfort to track and monitor. They offer you some tools and reports that you can use to categorize the expenses. These tools help you to track expenses, simplify the finances, and make efficient business reports.
• Credit reporting: Based on your business credit card activity, the credit bureaus in Canada will create a credit report. Equifax and TransUnion record all your financial activity on your business credit card and most likely will report it to both your personal and business profile. Based on your credit activities, your credit score is generated which depicts your credit history and creditworthiness. This is why it is advised to use the business credit card responsibly and make all payments on time. Many users like to take advantage of the minimum amount due and tend to delay payment. They are of the view that they should invest the money in business instead to earn some profit. But what they don’t realize is that they have to pay an additional interest rate on that outstanding amount which can pile up their debt and it also negatively impact their credit history and credit score. A low credit score means that they won't be able to get loans on favorable terms or credit cards with good credit limits in the future and have to bear financial constraints.

To consider all these factors at the same time and find the best card for you, you can use FinlyWealth's business credit card comparison tool.

Why apply for a business credit card?

Many people prefer to use the personal credit card to conduct business transactions so why does one even need a separate business credit card? Well, it is because business credit card offers several benefits and ease of use to credit card holders in Canada. These benefits and features include:

• Having a separate business credit card makes it easier to maintain a record of business transactions.
• You can use your business credit card statement for taxation purposes as all transactions are already consolidated in one place. This is especially beneficial for small businesses.
• Credit usage helps to create a strong credit history and credit score that can help in the future.
• Qualifying for a business credit card to get a short-term loan is easy compared to applying for a loan.
• You can get employee credit cards with the comfort that you can monitor every expense.
• Business credit cards often come with additional perks of managing business expenditures especially when there are multiple users of business credit cards.
• You can enjoy associated rewards and benefits that are specifically tailored to your business needs.