It’s easy to understand why many business owners use business credit cards: The money-saving value of rewards, benefits like separation of business activity from personal spending, and access to expense management tools that can help forecast cash flow. But the variety of available business card programs – and the application process – can seem overwhelming, at least at first. To make the process easier, follow these three steps:
- Check your business and personal credit scores.
- Find the best card for your business.
- Submit an application.
1. Check Your Credit Score Before Applying for a Business Credit Card
Obtaining approval for a business credit card and quantifying the company’s credit limit are based on the company’s credit history and/or that of its owner. For example, the higher the credit score, the more likely a company will get approved on its own, and the higher its credit limit may be. Company credit ratings are provided by the major business credit reporting agencies, Dun & Bradstreet, Equifax, and TransUnion, and are based payment history and public records. Some business credit cards available to small businesses will include personal credit checks, including all of the small business cards available at American Express Canada, so it’s important to understand your personal score too. While businesses can usually check their credit scores for free at the credit bureaus, full credit reports may have a cost associated. Therefore, it’s wise to plan for potential extra time and expenses before starting the application process.
In cases where a company hasn’t built its own credit score, the business owner can rely on their personal credit score. The card issuer will typically do a hard inquiry on the applicant’s personal credit history to determine creditworthiness and every issuer has its own criteria. Personal credit scores are available for free through Equifax and TransUnion and many banks.
For more on how to build your credit score, read “How Long Does It Take to Build Your Credit Score?
2. Identify the Best Business Credit Card for Your Company
Once you have an understanding of your credit score, it will make it easier to determine which credit card is the best fit for the company. Start narrowing options by identifying the programs with achievable qualification criteria, such as minimum credit scores, company legal structure, or access to personal guarantees. Next, filter the programs for features that are most important for the way your company does business – what’s valuable for one company may not be for others. Typical features to consider when choosing the best card for your business include:
- Interest Rates: A lower Annual Interest Rate (AIR) might be more of a priority for companies that anticipate carrying balances than for those that expect to pay monthly balances in full. Low or 0% introductory AIR offers may be attractive for companies planning big-ticket purchases and for those needing to build out their credit profile, as long as they’re mindful of the introductory timeframe.
- Rewards: Rewards can be a significant economic benefit if aligned with the business’ spending needs. Additionally, consider the terms and conditions for how rewards are earned: Are they tiered for certain categories or flat-rate? For example, a business with large travel expenses may earn more rewards with a card that offers bonus points on travel spending.
- Financial Tools: Some credit card issuers offer expense management tools to their clients. These tools can reduce administrative burdens and streamline cash flow management by integrating with client accounting systems.
- Fees: Check the cardmember agreement for details about fees, and do a cost/benefit analysis of annual fees as a tradeoff for other business credit card features. For example, if the annual fee is $500 but you expect to gain $400 worth of benefit from the card, the annual fee may feel more like $100. Be sure to include any extra annual fees for additional card members. It’s also worth considering delinquency charges, as well as foreign transaction fees if international spending is a factor.
3. Submit a Business Credit Card Application
Application requirements can differ by business credit card program but it’s a universal criterion that the application must be completed by someone who is 18 or 19 years or older, differing by Canadian province, and authorized to make financial decisions for the company. In most cases, the application can be completed over the phone or online (in Quebec applications can only be completed online)
Gathering all required information in advance can make filling out the application faster and easier. Though card issuers often follow up with individual questions and requirements, these are among the common application requirements:
- Company’s legal business name.
- Company contact information including email address, business address, and phone number.
- The company name as it is to appear on the credit card.
- The company’s industry, such as food service, construction, or business consulting.
- Company structure, such as LLP, corporation, partnership, or sole proprietorship.
- Number of years the company has been in business.
- Number of employees.
- Annual business revenue and income.
- Anticipated monthly spend on the credit card.
- Business Number or Social Insurance number
- List of expected employee cardholders.
- Personal income if relying on personal credit score.
Most online applications are evaluated quickly, and credit cards are mailed to those approved. Like personal credit cards, business credit cards need to be activated before use. And remember: many business credit card programs require a personal guarantee from all owners with a 20% or more stake in the business. In other words, they require owners to take personal responsibility for the statements if the company cannot pay it.
What If Your Application Is Denied?
If an application for a business credit card is denied, it’s important to learn why. Sometimes the reason is administrative and can be easily fixed, such as a typo or an unrecognized address. Other times, it can be due to poor credit scores. When this occurs, it’s important to try to raise the business’ credit score prior to reapplying. For example, on-time bill payments can go a long way in improving a business – or personal – credit score. Another way for businesses to boost their credit score is to open trade credit lines with a few suppliers and request that they report good payment history to the credit agencies. It’s also a good idea to periodically monitor credit reports for errors.
Alternatively, a secured business credit card can be a way to access credit and build credit history. If appropriate, it may also help to consider applying for a credit card designed for startup businesses.
The Takeaway
Business credit cards can provide many benefits for most companies, regardless of their size, industry, and age. Understanding the three steps involved in applying for a business credit card – knowing your credit score, identifying the right card, and submitting an application – can help make the process easier and help yield the best economic match for your business.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.