Starting a Business? Get a Small Business Credit Card or Two

By Jason Wang

So you are about to launch your business. Congratulations! What an exciting place to be. But before you renovate your store or office space, before you get your marketing materials designed and printed, and certainly before you write the first batch of cheques to pay your suppliers, you should make a point to apply for a small business credit card, or even two (we’ll get to the “two” part later).

You probably have a few personal credit cards in your wallet. Think about why you signed up for those – first there’s the convenience of a credit card; you can pay for most things in stores and online easily. Next there’s the advantage of security, with no need to carry a large amount of cash.

And now that Canada has phased in chip cards, you have an additional layer of fraud protection. Finally, many credit cards allow you to take advantage of a rewards program, where you can accumulate points when spending, and redeem those for cash, statement credit, merchandise or travel.

All these benefits are still true for business cards. And there is more! If your knowledge about credit cards has been based on your experience of using a personal card, then you may not be fully aware of the following.

Tax deduction of the annual fee: Many cards charge you an annual membership fee. That fee may be tax deductible if you use the card solely for business purposes. This puts some tax refunds into your startup, where every penny counts.

Easy expense management: If you get a supplemental card (or cards) for your key employees, then by logging into online account management you will have a clear view of how much they have spent, and on what. Some card issuers also offer expense management solutions that can be linked to the credit card account, providing easier expense management.

Travel protection at no extra cost: Although you probably have not had a great demand for travel protection other than when you take your vacation each year, as a business owner you may now find yourself travelling a lot more. You may be pleasantly surprised by the wide range of coverage that comes with the small business credit card, from travel accident insurance, rental car theft and damage insurance, to flight delay and baggage coverage. You may even be covered for hotel burglaries. And remember, you have already paid for these coverages with the annual card fee, which as we pointed out, may be claimed as a tax deduction.

Better customer service from the card issuer: Your business is important to the credit card company, and they acknowledge that by paying attention to your needs, concerns and complaints. Some issuers even assign you a dedicated account manager who is always there to answer your questions and help with your needs – and again, at no extra cost.

Smart cash flow management: Don’t you wish you could collect account receivables as early as possible, and pay account payables as late as possible? Good luck negotiating a 50-day interest-free deferred payment plan – it will be hard to persuade a supplier to agree to that much of a delay. Well, your wish is granted if you have a credit card, all because of two unique features of a credit card: “cycle date” and “grace period” (pardon our jargon). You can use your card for procurement any time, but the account only cycles once a month. After it cycles, you are given additional time to make a payment. And by the way, most issuers allow you to choose a cycle date that works best for you.

Let’s imagine a scenario where you have decided to make the 30th of each month your cycle date. If you make a purchase on April 1st, the transaction will only show up on the statement after your account cycles on April 30th. You have enjoyed 29 days of no-payment period. But that’s not all.

Your statement allows you a grace period, and it ranges from 17 days to 31 days, depending on the specific card. Suppose your card allows 21 days, which means payment is due on May 21st. You bought from your supplier on April 1st, and cash is out of your banking account a whopping 50 days later, with no interest charge at all. In this example, we assumed you incur the transaction very early in the cycle, so you can take advantage of the long time before the account cycles.

But what if you make a purchase late in the cycle, say April 25th? Admittedly, you do have a short interest-free period, now only 26 days (from April 25th to May 21st). This is where the “2-card strategy” comes in. Get another card and choose the 15th of each month as the cycle date. Purchases between the 1st and 15th of each month should be put on your first card, and transactions between the 16th and month-end should go on your second card. This way, you are guaranteed an interest-free period of at least 36 days, still better than what you can ask from a supplier, which is typically no longer than 30 days.

Being an entrepreneur requires a different mindset, and how you approach cash flow management and use of credit is an important part of the new thinking. Bear in mind that you are building a credit file for your business entity. Just like you have kept your personal credit profile in good standing, it is equally important to maintain the credit profile of your business. Credit bureaus such as TransUnion Canada offer services to businesses. Go to to learn more.

Jason Wang is director of research and industry analysis for TransUnion Canada. In this role, Wang works cross-functionally in risk management and marketing analytics to develop sophisticated, strategic solutions across the spectrum of the consumer lending business. He earned his MBA at New York University, Stern School of Business and his bachelor’s degree in physics at Beijing University. In addition, Mr. Wang is a CFA charterholder.