Should You Have a Business Credit Card When You First Start a Business?

By the small business content developers at
When starting a business, your success will depend on how well you plan, and manage, your finances, no matter what field you’re in. If you’ve started thinking about getting a business credit card, there are a few things you should consider first. While it is important for companies to build credit, and business credit cards are a great way to do that, credit cards come with many subtle costs that small business owners can’t afford to ignore. Once you consider the possible advantages and pitfalls of small business credit cards for entrepreneurs, you may revise your opinions of short term financing for your company’s needs.

The Good

  • Quick access to funds if cash flow is slow

  • Rewards may lower the cost of financing

  • Make it easier to separate personal and business spending

  • Help your business build credit

  • Higher credit limits than personal credit cards

  • Fairly easy qualification standards

It’s always a good idea to build your business’ credit, as long as you stay on top of those monthly payments and don’t let that interest rate escalate your cost to borrow money. Many cards today offer rewards in the form of cash back or even travel perks, so if these appeal to you, the right rewards-based card might be a good fit.

The Bad

  • High annual fees

  • Less protection than personal credit cards

Business credit cards may entice you with points, rewards, or cash back on certain types of purchases, but high annual fees may wipe out any actual gains unless you make annual purchases in the higher tens of thousands. That’s why it’s important that you factor in that interest rate so you really understand the value. Of course, paying off your balance in full each month is the best way to keep from being taken advantage of.

The Ugly

  • Higher costs than other types of financing

  • Rates on balances are subject to change overnight

  • Business owners are personally liable for balances

In the case of small businesses and credit, it’s always advisable to consider the worst case scenario. If your company is considering a large purchase of equipment, inventory, or other materials, you might think that short-term financing like a credit card provides a good option for securing those items, but what happens if your client’s payment is late or even disputed? Do you have sufficient funds to make minimum payments if you’re forced to carry the cost? Or are there other ways for your company to make the purchase?

Higher credit limits on business credit cards also allow business owners to spend more. If you’re someone who doesn’t always know your outstanding balances, you could get in over your head without realizing it and be held personally responsible for any costs incurred by your company. In addition, if the card information is stolen on a business credit card, the company’s owners may have unlimited liability in contrast to the $50 limit of liability on personal credit cards.

Credit cards may provide flexible financing that helps entrepreneurs establish credit worthiness. If this is one of your considerations, check with your credit card company to confirm what information they report to the credit bureaus, as not all credit card companies report the same data. If you decide to get a credit card for your small business, make sure you read and understand the fine print before you sign on the dotted line.

In celebration of Small Business Month and their 25th anniversary, Staples Canada has created a short video series featuring small business owners.  Watch below as they discuss starting out, and reflect on what it means to be an entrepreneur.

By Andrew Patricio

October 05, 2016