A business credit card is a common way for startups and new businesses to borrow money. They can help you manage cash flow, cover unexpected expenses and spread the cost of larger purchases. Managed well, a business credit card can also help you to build a credit history for your startup or new business, giving you access to better deals in the future.
What are the benefits of business credit cards for startups and new businesses?
A business credit card is a relatively easy way for a startup or new business to borrow money as the eligibility requirements are often less strict than other forms of finance, such as a business loan, which often requires your business to be firmly established and running at a profit, with a good credit history.
Business credit cards work in a similar way to personal credit cards, but they typically have some added perks. For example, they often have a higher credit limit to cover the cost of larger business expenses, and sometimes include expense management tools and integration with accounting software.
How to choose the best business credit card for your startup or new business
Before you apply for a business credit card for your startup or new business, there are a few key details to consider to help you find the card that’s right for you.
Interest rate (APR)
This is particularly important if you don’t expect to clear your balance in full each month. Look for a low APR to keep the interest you will pay to a minimum.
Fees and charges
Some providers charge an annual or monthly fee – and if you have more than one, this can apply to each cardholder. Often an annual fee gives you access to extra perks, but this is only worthwhile if you’re confident you will take advantage of these extras.
Credit limit
Although you may not find out your credit limit until your application is accepted, most lenders have an eligibility checker which gives you an idea of what it’s likely to be. This helps you to work out if a particular credit card suits your business’s spending requirements.
Cashback and rewards
Some providers offer cashback or rewards, including air miles and travel vouchers. Always check for restrictions like a minimum spend or spending cap, and bear in mind that these benefits can be quickly cancelled out by interest and charges unless you clear your balance each month.
Expense management
Some business credit cards include free expense management tools and integration with accounting software. This can cut your admin time and make it easier to keep track of your spending.
Eligibility
Not all providers will lend to startups and new businesses simply because your business hasn’t yet built up a credit rating, and some won’t accept sole traders. Make sure you check your eligibility before you apply.
Pros and cons of business credit cards for startups and new businesses
Advantages
- A business credit card can help you to manage cashflow and cover short-term expenses, which is invaluable when you’re establishing your business.
- Some of the best business credit cards for startups and small businesses reward you with cashback or reward points, putting a little extra money back into your business.
- Business credit cards typically have higher credit limits than personal credit cards, helping you to cover more substantial costs.
- Getting a business credit card for your startup or small business helps you to keep business and personal finances separate.
- Some business credit cards include expense management tools, making it easier to track your expenses and reducing the time you spend on admin.
- Managed well, a business credit card may help you to build a good credit score for your startup or new business.
Disadvantages
- Some providers charge annual or monthly fees.
- Unless you’re able to clear your balance in full each month, credit cards can be an expensive way to borrow as they often charge higher rates of interest than personal credit cards.
- Debt can quickly build up if you don’t clear your outstanding balance in full.
- 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.
- You could damage your business credit score if you don’t keep up with repayments.
Am I eligible for a business credit card for my startup or new business?
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 and may require a minimum business turnover or a good credit score – which can make things tricky if your business isn’t well established.
The good news is that some lenders cater specifically to startups and new businesses. Although the provider will run a credit check, you can usually check your eligibility in advance and they may also check your personal credit history in order to build up a clearer picture of your creditworthiness.
How to apply for a business credit card for a startup or new business
You can usually apply for a business credit card online. In some cases you may be able to apply over the phone or, depending on the provider, in person at a branch of the relevant bank.
Providers will usually allow you to check your eligibility before you apply, giving you an idea of how likely you are to be accepted. This is particularly important if you don’t have an established credit history for your startup or new business as it will reduce the risk of an unsuccessful application, which could hurt your business’s credit score.
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 your business is still very new)
- Your bank details
If you apply online you may get an instant decision, 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.
How to use a business credit card when you have a startup or new business
The following five tips will help you to make the most of your business credit card:
- Pay your bill in full each month
Each month you can expect to have an interest-free period, typically around 40-50 days. So, when you pay in full, and on time, you won’t be charged any interest. This not only saves you money and prevents your debt from accumulating, but also helps to build your credit score.
- Know your credit limit
Pay attention to your credit limit, and resist the temptation to max out your card. Overspending not only increases the chances of ending up in debt, it could also damage your credit rating if you consistently use more than 30% of your available credit.
- Maximise your rewards
If your provider offers cashback or rewards, take advantage of introductory deals or promotional offers designed to help you maximise your rewards. Bear in mind that these benefits will soon be cancelled out if you don’t clear your balance in full each month.
- Check for fees and charges
Some providers charge foreign transaction fees, annual charges or ATM fees. Pay attention to which of these apply to your account and take steps to avoid them, where possible.
- Avoid using your credit card to withdraw cash
Using your business credit card to withdraw cash at an ATM, also known as a ‘cash advance’, isn’t a good idea. Some providers may charge a cash advance fee, but even if they don’t, you may be charged a higher rate of interest than the standard purchase APR from the day the transaction is made.
Alternatives to business credit cards for startups and new businesses
If you have a startup or new business, there are a few alternatives to business credit cards.
Business charge cards
Unlike credit cards, you will need to clear the full balance on a business charge card each month. This means you won’t be able to spread the cost of expensive purchases over time, but also reduces the risk of building up debt.
Business bank accounts
A business bank account often includes an overdraft facility, which can be particularly useful for startups and new businesses.
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 for new businesses.
Invoice finance
This can be a useful option for new businesses facing challenges with cash flow. 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 card for startups and new businesses FAQs
Yes, some providers offer credit cards aimed at startups and new businesses. This means that lacking a business credit history or having a low turnover isn’t necessarily a barrier to acceptance. However, lenders may want to check your personal credit history as well as your business’s in order to build up a clearer picture of your credit worthiness, and may sometimes require a personal guarantee.
It can take a while to build up a credit history for your new business, which is why some providers will also consider your personal credit history when you make an application. It can be more challenging to get accepted, but having a good personal credit score can boost your chances of being approved.
Not necessarily. Providers which specialise in startups or new businesses may not require this, but some may ask for proof of income or revenue projections based on your business plan.
If your business doesn’t have an established credit history, it’s likely that you will be offered a low credit limit initially, and may also pay a higher rate of interest. However, if you use your card responsibly and make payments on time, your credit limit may be gradually increased as your business credit score improves.
Yes. Although some providers don’t offer business credit cards to sole traders, many do – so check the eligibility requirements before you apply. Most providers have eligibility checkers on their websites, which give you an idea of how likely you are to be accepted, without leaving a mark on your credit report.
A personal guarantee is a legally-binding agreement that you will be personally responsible for paying your business debts, even if the credit card is used only for business purposes. Many startups and new businesses are asked to sign a personal guarantee simply because their business hasn’t yet established a credit history so it’s harder for a lender to assess how likely they are to get their money back.
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