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Table of Contents
- What is a business credit card?
- How do business credit cards work?
- How do you get a business credit card?
- Are business cards personally guaranteed?
- Can I use a business credit card for personal spending?
- Can I use a personal credit card for business spending?
- What are the different types of business credit cards?
- How to find the best business credit card
- Pros and cons of business credit cards
- Do business credit cards help you build credit?
For small business owners, business credit cards can be a useful tool to help you grow your enterprise.
Using a business credit card could enable you to access flexible credit at the same time as helping your business to build up a strong credit history. You may also receive various rewards, discounts, or incentives for spending on your business credit card.
In turn, if your business has a strong credit history, it can open the door to cheaper or easier borrowing so your small business can finance its growth further down the line.
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What is a business credit card?
In general, business credit cards work just like personal credit cards.
You will need to apply to a lender if you want a business credit card. If your application is approved, your lender will grant you a credit limit, which is likely to depend on your personal and financial circumstances.
Your credit limit is the maximum amount of money you’ll be able to borrow on your business credit card at any one time.
You can spend on your business credit card (up to your credit limit) to cover your business expenses. As you spend on your business credit card, your balance (what you owe) will increase.
You can choose to either pay off the balance in full each month, make the minimum payment, or something in between. Your options in this case may depend on your lender.
You’ll be charged interest each month if you don’t pay off the card in full. Be warned that if you don’t pay off the card in full, the addition of interest will increase the amount you pay back in the long term, and it’ll take longer to repay your debt.
It’s always cheaper, in the long run, to repay your card in full.
If you use the card responsibly, the lender may offer to increase your credit limit over time.
How do business credit cards work?
In practice, you would use a business credit card in much the same way as a personal credit card, but just for your business transactions.
In both cases, you must apply to a lender, who will set a credit limit to restrict how much you can owe at any one time. Similarly, in both cases, you will be charged interest on the money you don’t pay off in full at the end of each month.
The key difference is that a business credit card will be taken out in the name of your business. For a personal credit card, you’d apply for and hold the card in your own name.
When you use a business credit card, you can therefore separate your personal and business finances – similarly to how opening a business bank account allows for separation between your money and your company’s finances.
At the same time, business credit cards can also be useful for managing cash flow.
How do you get a business credit card?
You can typically apply online for a business credit card. Decisions can be made quickly – instantly, in some cases – but be aware that a decision could take as long as a couple of weeks.
If your business has been trading for a while, you may find the business credit card approval process quicker and easier. This is because new businesses don’t have as much credit history as longer-standing enterprises.
For a lender, a strong credit history suggests that you or your business is a safer bet – because you’ve paid back loans you’ve received in the past.
As part of the business credit card application process, 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.
And bear in mind that if your business is a start up, you may be subjected to a bit more scrutiny before a lender makes a decision. This could involve you being asked to provide additional information about your personal finances or the lender conducting a check of your personal credit score.
Are business cards personally guaranteed?
Some lenders might require you to provide a personal guarantee before you are approved for a business credit card.
If your business doesn’t have much of a credit history (for example, because you haven’t been trading for a long time), a lender may check your personal credit score as part of the business credit card application process.
You may also be asked to provide a personal guarantee in this case. Think carefully before you provide one, as it means you will be on the hook to make repayments with your own money if your business struggles.
Can I use a business credit card for personal spending?
Business credit cards should be used only to pay for expenses and transactions relating to your business. If a lender approves you for a business credit card, it’ll be on the understanding that you will only use your new credit card for business spending.
Business credit card lenders generally don’t provide explicit rules about what you can and can’t use your business credit card for. But as a general rule, any small purchases or costs incurred in the course of operating your business will be permissible: from travel expenses to acquiring office equipment and paying invoices.
Obviously, you cannot use your business credit card to buy anything illegal. And while it’s not illegal to use your business credit card for personal spending, it’s definitely not advisable.
If you start blurring the line between your business and personal spending, you will lose one of the key benefits of holding a business credit card: the separation of your personal and business finances.
Also, bear in mind that if you have provided a personal guarantee, your own finances may be impacted if you are unable to pay off your business credit card. This may also affect your personal and business credit score.
If you’re having doubts about whether it’s OK to put a certain purchase on your business credit card, it’s always best to err on the side of caution.
Can I use a personal credit card for business spending?
There is no law that says you can’t use your personal credit card to buy things for your business. However, it’s better to keep all your personal spending on a personal credit card and all your business spending on a business credit card.
Delineating your personal and business spending will make sure you keep your finances separate. Not only will this save you a headache from a tax accounting perspective, it’ll also make it easier to keep on top of your own money and see clearly how your business is doing at any given time.
Also bear in mind that business credit cards are designed to meet the needs of businesses. This means they are likely to come with higher credit limits than personal cards – making business credit cards much more useful for business spending.
What are the different types of business credit cards?
Generally speaking, business credit cards can be divided into the following categories:
- Rewards business credit cards are more likely to come with cashback, perks, or incentives to reward business spending. The disadvantage is that rewards cards may require you to stump up an annual fee.
- Purchase business credit cards are designed to help you manage your business cash flow. They often come with interest-free periods, allowing you to spread the cost of your purchases.
- Balance transfer business credit cards are useful for transferring existing debt. The best deals on the market are likely to come with a 0% interest introductory offer.
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 small business have a solid trading history? Have you successfully taken out and repaid business loans and cards in the past?
Also, consider how you will use your business credit card.
Do you want rewards for daily spending that you always pay off in full, a low interest rate on balance transfers, or a business credit card that charges no fees for spending abroad? Can you manage your business credit card 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.
Provider | Representative APR | Annual fee in first year | Annual fee after first year | |
|---|---|---|---|---|
 | 18.9% | £0 | £0 | |
 | 21.8% | £24 | £24 | |
 | 22% | £0 | £32 | |
 | 22.4% | £0 | £28 | |
 | 22.4% | £0 | £28 | |
 | 24.3% | £0 | £30 | |
 | 24.3% | £0 | £30 | |
 | 25.7% | £25 | £25 |
This table is checked and updated regularly. We aim to provide accurate information but prices, terms and conditions of products and offers can change, so double-check first. Business credit card data is provided by Fairer Finance.
Pros and cons of business credit cards
Pros of using a business credit card
- You’re more likely to be accepted for a business credit card than for a business loan.
- With a business credit card, you get access to a flexible line of credit you can use as and when you need – rather than committing to a certain loan amount.
- You can give business credit cards to your employees, making expenses easier to manage.
- Applications for business credit cards are usually quick and easy compared with other sources of business finance, and decisions are often made quickly.
- You may be able to claim tax relief on business credit card charges when you spend for business purposes.
- Using a business credit card can help you build up your business credit score.
- You may be eligible for rewards or perks when you spend on a business credit card.
- Business credit cards can make it easier to manage business cash flow by deferring or spreading the cost of payments.
Cons of using a business credit card
- You’ll pay a higher interest rate on a business credit card than on a loan.
- You might have to pay an annual fee to access your business credit card.
- Your business is likely to need a strong credit rating to be approved for a business credit card. This could prove an obstacle for startups.
- 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.
- If you struggle to repay the debt incurred by your business credit card, your personal credit score and finances could be affected.
Do business credit cards help you build credit?
A key benefit of business credit cards is that they can help you build your business credit score.
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, bear in mind that if you misuse your business credit card or pay late then your credit file is likely to suffer for it.
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