Business credit cards can be really useful as a business owner, as long as you manage them properly. They can give you flexible access to credit while helping you build a strong credit history. In time, this can open the door to cheaper borrowing so your company can finance its growth further down the line.
What is a business credit card?
Business credit cards work just like personal credit cards. Your lender grants you a set credit limit, and you spend on the card to cover your business expenses. Then you can choose to either pay off the balance in full each month, make the minimum payment, or something in between. You’ll be charged interest each month if you don’t pay off the card in full. If you use the card responsibly, the lender may offer to increase your credit limit over time.
How do you get a business credit card?
You should find it quick and easy to apply for most business credit cards online, and you should get a fast decision in most cases.
You’ll need to give information about the nature of your business, such as the sector you trade in, the number of employees, company income, and when you started trading. You’ll also need to give details about yourself, such as your address history.
Before you apply, check for any exclusions – some card providers will only issue credit cards to businesses with turnover above a certain level, for example.
Are business cards personally guaranteed?
Some are and some aren’t. If your business doesn’t have much of a credit history, a lender may credit check you personally before it decides whether to issue a card, or it might ask you to sign a personal guarantee. Think carefully before doing this as it means you are on the hook for repayments with your own money if your business struggles. Try to negotiate with the lender on this point if you can.
How to find the best business credit card
There are a lot of options out there so, to help you choose, think about how likely you are to be accepted for the top deals. Does your company have a solid trading history? Have you successfully taken out and repaid loans and cards in the past?
Also, consider how you will use the card – do you want rewards for daily spending that you always pay off in full, a low interest rate on balance transfers, or a card that charges no fees for spending abroad? Can you manage it through an app and are there charges for additional cardholders if you’d like to give cards to your employees?
Check out the annual interest rate (APR) to see if a card is competitive, look for introductory or annual fees, and watch out for any other high charges in the small print.
Pros and cons of business credit cards
- You’re more likely to be accepted for a business credit card than for a loan.
- You get a flexible line of credit you can use as and when you need rather than committing to a certain loan amount.
- You can give company credit cards to employees making expenses easier to manage.
- Applications are usually quick and easy, with fast decisions.
- You may be able to claim tax relief on credit card charges where the spending was for business purposes.
- You’ll pay a higher interest rate on a credit card than on a loan.
- You might pay an annual fee.
- You’ll need a decent credit rating to get one.
- You might be given a low credit limit, at least initially.
- You don’t get the same level of consumer protection with a business credit card as you do with a personal credit card.
Do business cards build credit?
Yes, and this is an important benefit they offer. Using your card often and repaying the balance on time can improve your access to future credit of all types at more competitive rates. But, equally, misuse your card or pay late and your credit file will suffer for it.
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Advantages and Disadvantages of Credit Cards
It’s important to know the potential advantages and disadvantages of credit cards before applying for one. Even though credit cards can be useful, there are some risks to be aware of too.