Table of Contents
- Should I get a credit card for my business?
- How to use a business credit card
- Key considerations when you compare business credit cards
- Am I eligible for a business credit card?
- Pros and cons of business credit cards
- How to apply for a business credit card
- Alternatives to business credit cards
- Business credit cards FAQs
Business credit cards work in much the same way as personal credit cards, but they offer a range of additional features designed to help your business grow. Flexible repayment options help you spread costs over time, and some company credit cards offer extra perks like cashback or rewards, including air miles.
Should I get a credit card for my business?
A business credit card could help you manage cashflow, streamline expense management and, used responsibly, can also help to build a credit history for your business, improving your access to credit in the future.
Unlike personal credit cards, business credit cards are designed specifically for business expenses, so they typically have a higher credit limit to cover the cost of larger purchases, and sometimes offer expense management tools and integration with accounting software.
However, as with any credit card, you will be charged interest on any outstanding balance, and some top rated business credit cards charge annual or monthly fees. If you don’t manage the card well, you could also damage your business’s credit rating.
Before you apply, check your eligibility, consider the representative APR and any applicable fees to work out how much the card will cost you, and think about whether it offers the features that your business needs most, whether that’s a high credit limit, 0% interest periods, cashback or rewards, or no-fee overseas spending.
How to use a business credit card
There are different types of credit cards for business owners, each with a different purpose in mind.
- Purchase business credit cards: These typically offer low or 0% interest periods, so they can be a helpful way to manage cash flow as they give you more time to pay off your spending before you have to pay interest.
- Rewards business credit cards: These offer perks like cashback, reward points or air miles to reward your spending, but may charge you an annual fee.
- Balance transfer business credit cards: These cards typically have a 0% or low interest introductory offer, and can be used to transfer an existing debt, in exchange for a one-off fee. This can save money on interest payments and help you to pay off your balance more quickly.
Key considerations when you compare business credit cards
Before you apply for a business credit card, it’s wise to consider the following:
- Fees and charges: Some cards come with an annual fee, and some apply transaction fees to overseas spending. Before you apply, think about how you plan to use the card and work out if the benefits will outweigh the costs.
- Interest rate: Some providers offer an introductory rate, and balance transfer cards are designed for you to move your existing balance onto a new card with low or 0% interest. Don’t forget, you could avoid paying interest if you clear your balance in full each month.
- Credit limit: Your credit limit won’t be confirmed until your application is approved, as it’s based on your business’s credit rating. However, some providers advertise higher credit limits than others, so consider your business needs and your credit rating before you apply.
- Expense management tools: Some providers offer free expense tracking and management, which syncs with your accounting software. This makes it easier to track and categorise expenses and upload receipts, which can cut the time you spend on admin.
Am I eligible for a business credit card?
Broadly speaking, you can apply for a business credit card if you’re a business owner, sole trader, partner or director of a limited company. However, some providers have certain restrictions. For example, some don’t accept sole traders, and they may require a minimum business turnover. You might also find it harder to qualify for a business credit card if you have a start-up or a new business. In this case, lenders often check both your personal and business credit scores when processing your application.
Pros and cons of business credit cards
Advantages:
- Using a business credit card is a simple way to keep business and personal finances separate.
- Business credit cards usually have higher credit limits than personal credit cards, so you can cover more substantial business costs.
- The best business credit cards often include expense management tools, which make it easier to track your spending.
- Getting a credit card for your business can be a helpful tool to manage cash flow and cover short-term expenses.
- A business credit card can help you establish a credit history for your business. This may give you access to better deals in the future.
- Issuing additional company credit cards to your employees can help you to manage their expenses.
- With a business rewards credit card, you could be rewarded for your everyday spending with cashback or loyalty points.
Disadvantages:
- Some business credit cards may charge annual or monthly fees.
- Credit cards for business typically charge higher rates of interest than personal credit cards. This means they can be an expensive way to borrow unless you’re able to clear your balance in full each month.
- Unlike personal credit cards, business credit cards aren’t covered by Section 75 of the Consumer Credit Act, which protects purchases between £100 and £30,000 if something goes wrong. However, some business credit card providers do offer both fraud and purchase protection as standard.
- You could damage your business credit score if you overspend and don’t keep up with repayments.
- Debt can quickly accumulate if you don’t clear the balance on your business credit card each month.
How to apply for a business credit card
You can apply for a business credit card online and, depending on the provider, you may also be able to submit your application over the phone or in person at a branch of the relevant bank. Many providers will allow you to check your eligibility before you apply, giving you an idea of how likely you are to be accepted. This won’t affect your credit score, and reduces the risk of an unsuccessful application, which could hurt your credit score and your business’s.
However you choose to apply, you will need to supply the following information so that the provider can run a credit check:
- Your name, address, date of birth and contact details
- Your business’s legal name, registered address and company registration number
- Your average monthly turnover (or estimated turnover if you have a new business)
- Your bank details
You may get a decision within minutes if you apply online, although it can take a week or two if the lender needs more time to confirm the details of your business.
Once approved, your physical card
should arrive in the post within a few days. Some providers issue a virtual card that you can use right away.
Alternatives to business credit cards
There are a few alternatives to business credit cards, so think about how you plan to use it before you decide which option is right for you.
Business charge cards
Although you spend on business charge cards in the same way as credit cards, there’s one key difference: the balance must be cleared in full each month. This makes them a good option if you’re looking for a simple way to manage expenses without the risk of building up debt.
Business bank accounts
A business bank account often includes an overdraft facility, and sometimes accounting software is also included.
Business loans
A business loan gives you a lump sum of money that you then repay, with interest, in monthly instalments. There are different types of business loans available, including start up business loans.
Invoice finance
Instead of waiting for clients to pay, invoice finance gives you access to money that’s tied up in unpaid invoices, helping you to maintain a smooth cash flow.
Business credit cards FAQs
Business credit cards help you to keep your personal and business spending separate, and can also help you to build a credit rating for your business. If you have a business rewards credit card you will also be rewarded for your spending with cashback or reward points.
When you spend using a business credit card you will need to make a minimum payment towards your balance each month, and you will be charged interest if you don’t repay what you owe in full. Unlike credit cards, charge cards don’t have a pre-set spending limit, but they are designed to be paid off in full every month. As a result, you won’t be charged interest, but you may be charged substantial late payment fees if you don’t pay on time.
Business credit cards should be used for business purposes only. Using them for personal expenses can constitute a violation of the terms of use, so you risk having your credit limit reduced or your account closed. It will also be more difficult to track your business and personal expenses, and you will also lose out on the Section 75 purchase protection that’s included when you spend on a personal credit card. If an employee uses their company credit card for personal expenses, they risk disciplinary action and may be personally liable for the debt.
There are different types of credit cards for business, so it’s wise to think about how you plan to use it. Then, before you apply, you can calculate how much it will cost you (or save you) to use it. For example, if you don’t expect to clear your balance in full each month, look for a low interest rate or a 0% introductory offer so that you pay the minimum amount of interest. If you would like to move an existing debt to a new card, a balance transfer credit card for business could be a good choice. A business credit card with rewards comes with extra perks like cashback or air miles. This is a great way to reward your everyday spending, but it’s only really worthwhile if you clear your balance each month, as otherwise the amount you pay in interest will quickly cancel out any rewards you earn.
Fees and charges vary by provider, so check these before you apply. Some cards have an annual or monthly fee, and some charge you for using your card overseas – but it is possible to avoid these fees if you shop around for the best deals. You can expect to be charged interest on your balance, but some providers offer 0% introductory deals, and most will have a set period of interest-free borrowing on new purchases. This could be as much as 56 days, so may be able to avoid paying interest altogether if you repay in full each month.
Although your business credit score and your personal credit score are separate, there are situations where a business credit card could affect a business owner’s personal credit score. This could be because the provider requires a personal guarantee, which makes you liable for your business debts. Providers may also look at your personal credit file if you have a new business and haven’t yet built up a credit history for your business. This won’t cause any issues if you manage your business credit card well and make all your payments on time. In fact, managing your business credit card well could improve both your business and personal credit score. However, the opposite is also true: if you make late payments or don’t repay what you owe, this could hurt both your business and personal credit scores.
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