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Getting started with business credit cards

Business credit cards are a convenient payment option and can be used by freelancers, entrepreneurs, and more

Updated

8 min. read

If you’re a small business owner, cash flow is a major part of managing operations — and a credit card can help. When you make a payment on the card for supplies or equipment, you have a grace period of a few weeks. In that time, you can borrow the funds interest-free, so long as you pay your credit card balance in full by the time the due date hits. In this guide, learn how business credit cards work and how to use them.

What is a business credit card?

A business credit card is a type of payment tool exclusively offered to business owners that utilizes a revolving line of credit. Similar to a personal credit card, a business credit card is designed to help cover purchases. The main difference is the user and what the card is intended for — in this case, business expenses.

The advantages of business credit cards include:

Helps you keep expenses separate from your personal finances
Easy to track
Can improve cash flow
Boost purchasing power
Often have benefits designed for business spending, such as accelerator points on the most common business expenses vs. most common personal expenses
Helps build credit history for your business
Business cards tend to have higher credit limits than retail

Seven benefits of a business credit card

Whether you’re a freelancer, small business owner, or entrepreneur, growth and longevity are key. But sometimes you may lack the resources you need — and that’s where a business credit card can help.

Business credit cards aren’t just a payment tool. But they’re a way to boost cash flow and have access to capital when you need it. Here are some ways a business credit card can be used to grow your business:

Improve cash flow. Using a credit card allows business owners to pay for something now and pay it off later. If used properly, this can help you while you wait for more funds to come in. To make the process work for you, you may be able to change your due date with your credit card issuer.
Large credit/spending limit. Prices keep going up and a credit card can offer you financing to get inventory or supplies now or while on sale. Just be aware of how interest accrues if you intend to carry a balance.
Card benefits tailored to business owners. Certain credit cards come with rewards for business categories, such as buying office supplies and making cell phone and internet payments.
Separate business vs. personal expense. A business credit card has the option of signing a Liability Waiver Program, so your card is protected from employees using the card for personal expenses.
Get rewarded for business spending. You can score cash back or airline miles that reward you for your normal business spending. These rewards can be used toward expenses or travel to offset costs.
Build business credit. If you eventually want a loan or financing to grow your enterprise, lenders will check out your business credit history. You might not have any, but a business credit card can help, making you more attractive to lenders in the future.
Control employee spending. One of the main advantages of business credit cards is that you can control the limit of the card for employee spending. Many cards come with a liability waiver program to provide protection against employee card abuse, which can help clear up confusion and any messy mix between personal and business expenses. The best part is you can track everything in one place. This can free up bookkeeping time and give you a unique vantage point to review spending reports.

“Businesses of all sizes should consider a business credit card.”

How business credit cards work in Canada

Just like you do with a personal credit card, you’ll need to apply for a business credit card and get approved and you may have to provide different documentation. The requirements for that will depend on the type of business you have, such as Sole Proprietorship, Corporation, Partnership. Branch/online resources can help ID specific documents required for the customer.

As part of that process, you’ll include your personal information and answer questions about your business. This is to see if you meet certain eligibility requirements. For example, you may be asked about company size and annual revenue or expenses. Your personal credit score may be used as part of the underwriting criteria.

Once approved, you can use a business credit card for expenses related to your company. Ideally, the total balance is paid off by the due date. If you make a minimum payment, interest will begin to accrue. Your business credit will typically have:

A credit limit. This refers to the amount of available credit offered to you. However, it’s a smart idea to keep balances relatively low to your limit to show that you’re a responsible borrower. Business cards tend to have higher limits compared to personal cards, but that will likely depend on the issuer and your credit.
APR. Your business credit card will come with an Annual Percentage Rate (APR). This will impact how much interest accrues if you decide to carry a balance on the card. Making a payment in full by the due date can eliminate interest costs. Typically, there’s a difference between the APR you receive on purchases, compared to balance transfers or cash advances.
Convenience. The BMO CashBack^® Business Mastercard^®^*lets you tap & go^® so you can quickly and easily pay.
Features and benefits. Some cards may come with rewards for certain business categories, such as travel insurance, airport lounge access and 5 free virtual Maple doctor visits. Some cards also come with liability protection and extended warranties.
Due dates. It’s important to see when payments for business credit cards are due. You can pay the total balance or make a minimum payment. You’re on the hook for interest accrued if you end up carrying a balance.

There may be an annual fee on some rewards cards, while others may not have it. Typically, an annual fee can mean more robust rewards, which may be worth the cost depending on your business needs.

What are the differences between a business credit card vs. a corporate business card?

The main difference between a business credit card and corporate credit card is that a business credit card is typically geared toward small business owners, while a corporate business card is for large corporations. Usually for commercial cards you owe your full balance at the end of the month vs. on business card you have the ability carry a balance if required to manage cash-flow cycles of your business.

Business credit cards can be used for a wide range of purchases to support your small business. Pay for supplies, equipment, invoices, and more. Corporate cards may be used for larger expenses such as office space or inventory. In some cases, staff of a corporation may have access to a corporate card to pay for tickets and travel to a conference.

Both are useful for business owners, but the availability will generally come down to your business entity type and revenue.

How a business credit card impacts your credit score

Personal credit cards are designed to pay for your personal expenses. Business credit cards are designed to pay for business expenses. Both options tend to look at your personal credit when evaluating your application. In other words, having a good credit score is generally required for a business credit card.

If approved, you can begin the process of building business credit. By making purchases and paying them off, you can establish a credit history for your business over time.

One thing to note is that you may be personally responsible for any business debt you accrue with your credit card. Plus, if you miss payments or carry high balances it could end up impacting your personal credit score.

How to determine if a business credit card is the right choice for your business

Businesses of all sizes should consider a business credit card. It’s a hassle-free way to streamline expenses and separate them from personal expenses. Plus, it establishes your business credit which can be a key ingredient to obtaining a loan later on. To help you decide if a business credit card is a good solution, consider the following:

Expenses. What are your current business expenses? Will a business credit card help you streamline payments and get something in return via rewards?
Cash flow. Will a business credit card help you improve cash flow? More importantly, will you have the funds to pay off the balance or any interest accrued?
Your personal credit. Though you may be opting for a business credit card, banks will likely assess your personal credit history in their approval decision. Do a check-in with your credit first to see where you’re at.
Employees. If your company includes employees that make payments on your behalf, a business credit card may be a smart idea. For example, the BMO World Elite^®* Business Mastercard^® allows you to get up to 22 credit cards for employees.
Fees and APR. If you apply for a business credit card, is there an annual fee and what is the APR? Understand terms and conditions before submitting an application.

Answering these questions and reviewing the disadvantages and advantages of business credit cards can help you make an informed decision.

Final thoughts

If you’re a business owner looking to streamline expense reporting and free up cash flow, a business credit card might be the right choice for you. Besides easily tracking expenses, you can earn rewards when you spend money on office supplies and cell phone and internet payments. Plus, having a business credit card will help you establish business credit, which can help you down the line.

Discover BMO’s various business credit cards and start earning rewards.