Small Business Credit Cards: Providing Credit for Entrepreneurs

There once was a time when small business credit cards were few and far between, but times have changed. Today small businesses have significantly more options to choose from. Small business is behind much of the economic growth in Canada, so it should come to no surprise credit card issuers are really making a push for their business. With so many credit cards out there, choosing the right one be a daunting task. Let’s take a look at what’s going on in the small business credit card space, as well as the benefits and factors to consider.

The Evolution of Small Business Credit Cards

Small business credit cards were once the new kid on the block. The first credit cards offered were plain vanilla with few perks and reward points. In the late 1990’s these credit cards really started to take off, with credit card issuers offering more generous perks and reward points.

There are limited stats on small business credit card usage in Canada, so we’re going to look to our neighbours to the south. In the United States, 83 per cent of entrepreneurs used credit cards to pay for goods and services, according to a 2010 study by the Federal Reserve. Of which, almost two-third used small-business credit cards.

Providing Credit for Small Businesses

Financing is often tight for small businesses, especially startups. It’s no secret starting a business is risky: 15 per cent of new businesses fail within the first year and half (49 per cent) fail within five years, according to Statistics Canada.

While your bank is often happy to finance your home purchase with as little as 5 per cent down, finding financing for your small business is another story. That’s why a lot of entrepreneurs have turned to small business credit cards.

Small business credit cards can be a good way to provide short-term financing, as long as you’re able to pay off your balance before the end of your grace period. In case you run into a financial bind, finding a credit card with an ultra-low interest rate is a must.

While there are many options to choose from, it’s interesting to find most business credit card offers only come from big banks with retail banking operations. For example, MBNA does not offer any “business credit cards”. Nor does Capital One. Since the big retail banks (RBC, TD, CIBC, etc.) already handle the chequing accounts of small business, they are in a better position to asses the risk of handing out a credit card to a new business.

However, it should be noted that banks generally require a personal guarantee against the spending on a business credit card. If the business goes under, the applicant will still be on the hook for the amount due.

Choosing the Right Credit Card

With so many small business credit cards out there, there’s no shortage to choose from. Credit card issuers are making a big push for your business, so it’s important to choose the credit card that best meets your needs. For today’s small business owner, you’ll want to choose the credit card with the perks and reward points you’ll benefit from most.

Here are some things to consider when choosing a small business credit card:

Interest rate: Small business credit cards often come with interest rates more attractive than consumer credit cards. For example, the CIBC bizline Visa card offers an interest rate as low as 1.5 per cent above prime. Although you may not want to carry a balance, sometimes you’ll have to keep your business afloat.

Credit limit: Your credit limit is the maximum outstanding balance you can carry on your credit card at any one time. Make sure you choose a card that offers a high enough limit – you’ll be thankful if one of your clients is late on their payment one month.

Rewards program: Similar to standard credit cards, rewards matter for small business owners. If you’re a frequent flyers perks like a speedy checkout and access to lounges at airports worldwide may be important. For those that don’t travel as often, you can’t go wrong with cash-back credit cards.

Fees: Since you may be travelling abroad, you should take the time to review fees. If you frequently travel to international destinations, a card that waives foreign transaction fees can be a good choice.

Introductory deals: Compare introductory offers for the best deal. Some small business credit cards offer insanely low interest rates on balance transfers for the first few months.

The Bottom Line

Just like your personal credit card, it’s important to shop around for the credit card that best meets the needs of your small business. Interest rate and credit limit are two important factors to consider, as you’ll never know when a client may be late on payment.