Business credit cards: advantages and disadvantages

How can you know if a business credit card would truly benefit you? By exploring its pros and cons. Discover insights, tips, and more on the subject in this article.

When used responsibly, a business credit card can offer significant advantages, such as:

Efficient expense management

A business credit card allows you to track your expenses effectively. Regardless of your financial institution, you can access your spending picture at your fingertips. This lets you monitor things in real-time or create reports based on specific criteria.

Access detailed quarterly statements to categorize expenses and integrate them with accounting software. Some of the best business credit cards allow you to integrate your credit account with applications and software such as QuickBooks or Sage50.

Building commercial credit

Good commercial credit offers a number of advantages, whatever the size or status of your business. First and foremost, a favourable trade credit means you’ll benefit from more straightforward, faster borrowing procedures. It also gives you access to higher tranches of business financing.

Your trade credit is also a valuable tool for accessing better repayment options with your suppliers and lenders. The golden rules:

• make your payments on time,
• and maintain a low utilization ratio.

The latter corresponds to the credit rate used on the total available. Ideally, it should remain below 30%.

Employee expense monitoring

A business credit card allows you to obtain credit cards for your employees, usually at no extra cost. In this way, they can proceed with their expenses without giving you a receipt, submit a claim for reimbursement, etc.

The American Express Business Edge^MD Card, for example, allows you to obtain up to 99 additional cards free of charge and offers:

• up to 67,000 Membership Rewards points in the first year,
• 3 times points on gas, office supplies and restaurants,
• and, like all American Express cards, there’s no minimum income requirement.

With detailed statements for all cards issued, you can keep an eye on spending at all times. Individual spending limits can also be set if required.

Short-term cash flow flexibility

The “short term” is important here. Access to capital anytime allows your company to remain flexible despite imponderables. However, a business credit card should never be used to cover your long-term cash flow needs. This could damage your business credit in many ways.

Rewards or cash back

Depending on your selected credit card, you can earn discounts in reward points, cash or miles. Even some loyalty programs reward you faster when you spend in bonus categories. These include gasoline, office supplies, restaurant expenses and more.

Simplified tax declaration with a business credit card

Separating your business expenses from your expenses dramatically reduces the work involved in filing your business tax return. No more digging through your personal statements to find out what you’re spending on your organization! Everything is in one place, and every expense is linked to your business.

For example, for AIR MILES collectors, the BMO^® AIR MILES^® World Elite^®* Mastercard for Business separates personal from business spending and offers:

• 3,000 AIR MILES in the first year,
• 4x miles at participating AIR MILES partners,
• 1 AIR MILES mile for every $12 in purchases everywhere else, including Costco,
• a wide range of protection for your travels and purchases,
• and no annual fee for the first year.

Obviously, choosing your card according to your needs optimizes your access to the benefits of a business credit card. However, this does not automatically cancel out the disadvantages.

As mentioned above, you benefit from using this card properly. This is how you reduce the impact of inconveniences, or avoid them altogether.

Without further ado, here are the most well-known disadvantages of owning a business credit card:

Creditworthiness required

Business credit cards require better creditworthiness than personal credit cards. Moreover, most issuers accept applications only for good or excellent credit. But don’t be discouraged. Secured business credit cards will help you establish or re-establish your business credit rating.

Debt accumulation

Getting a commercial credit card is very tempting, especially when you have many expenses as a company. But be careful. Accumulating debt can happen faster than you think. Before applying, ensure your financial health and cash flow are sufficient to pay off your credit card every month.

Impact on personal credit score

In general, business credit card issuers look at your personal creditworthiness when deciding. And if they perform a thorough credit analysis, your credit rating may be temporarily lowered. However, once your application has been approved, most issuers do not report business credit card activity to the credit bureaus.

Business credit card interest fees

Expect to pay particularly high-interest charges if balances are not paid in full. In this case, opt for cards offering interest-free periods, such as the Business Platinum Card^MD from American Express, which allows you to maximize your cash flow with up to 55 days interest-free. It is very useful for major purchases such as renovations, for example, and offers, among other things:

• up to 120,000 welcome offer points (with a minimum value of $1,200 for an account credit, or more if you transfer your points to a partner),
• 1.25 Membership Rewards points per dollar on all purchases,
• an annual travel credit of $200,
• free, unlimited access to over 1,300 airport lounges in more than 130 countries, including an additional traveler,
• many insurances: rental car theft and damage, $500,000 travel accident, emergency medical expenses (out-of-province or out-of-country), lost or stolen baggage, flight delay and misdirected baggage, hotel or motel burglary, Purchase Protection, Purchase Security.

A business credit card offers key advantages for businesses, including expense management, commercial credit building, and employee spending tracking.

Weigh these against potential drawbacks like credit requirements and debt risks, such as the need for adequate creditworthiness, the risk of accumulating debt and possible impacts on personal credit score. Choose wisely to maximize benefits and maintain financial health.

A business credit card can be a powerful tool for financial management and growth when used responsibly. Consider your business’s specific needs and financial situation for the best decision.