What is a business credit card?

A business credit card offers small businesses a convenient and flexible way to access funds. It can help you manage unexpected costs, purchase inventory or maintain a healthy cash flow. 

It also provides an easy way to keep your personal and business finances separate, and build a business credit score. This guide takes a closer look at how business credit cards work. 

At a glance

• A business credit card provides a flexible way to borrow funds as and when required

• Business credit cards work in the same way as personal credit cards, but usually have higher credit limits and can offer benefits tailored to businesses

• Using your business credit card carefully can help you build business credit

• There are several different types of business credit cards, so check which type best suits your business needs

How does a business credit card work?

A business credit card works like a personal credit card, but it’s designed for corporate spending and expenses. Your business credit card is in your company’s name, not your own, and you may find it offers a range of benefits tailored specifically towards businesses. 

These benefits can include additional cards with spending controls for employees, as well as cashback and other rewards. But be aware that you may have to pay an annual fee.

Business credit cards also tend to have higher credit limits than personal credit cards. However, both types allow you to borrow up to a set limit as and when required, enabling you to make purchases now and pay for them later. 

Every month, your card provider will send a statement detailing your balance and the amount you owe. You can choose to pay the minimum required, a higher amount or the full balance. Your provider usually adds interest to any outstanding balance.

Be warned that if you forget to make at least the minimum monthly repayment on time, your provider could charge you a penalty fee, which can negatively impact your business credit history. However, if you meet all your monthly repayments promptly and don’t exceed your credit limit, you should see your business credit score go up over time. 

Benefits of a business credit card

There are many benefits to using a business credit card. These include:

• Improved cash flow: Helps you manage short-term expenses and bridge gaps between income and outgoings

• Access to short-term credit: Enables you to borrow without needing a loan, often with interest-free periods if you pay off the balance in full each month

• Simplified expense tracking: Keeps business spending separate from personal finances, making it easier to track and manage expenses

• Builds business credit: Responsible use can help establish or improve your business credit score, which is useful for future financing

• Rewards and perks: Many business credit cards offer cashback, travel points or discounts on business-related purchases. Some also offer 0% interest on spending for a short period

• Employee spending control: You can issue cards to employees with customisable spending limits to monitor and manage expenses

Drawbacks of a business credit card

As well as benefits, there are several downsides to be aware of before applying for a business credit card. These include:

• High interest rates: If you don’t pay off the full balance each month, interest can add up quickly, with rates often higher than other forms of business credit

• Potential for debt accumulation: Easy access to funds can lead to overspending, resulting in unmanageable debt if not carefully controlled

• Fees and charges: Some cards come with annual fees, late payment penalties, foreign transaction fees or cash withdrawal charges

• Impact on credit history: If you don’t keep up with your repayments, you could damage your credit score

• No Section 75 cover: Unlike personal credit cards, business credit cards don’t provide Section 75 protection, which covers your purchase if something goes wrong

Types of business credit cards

When comparing business credit cards, you’ll come across a few different types, including: 

• 0% interest: These business credit cards typically offer a period of interest-free spending. However, 0% deals tend to be a lot shorter than you find on personal credit cards (often up to six months), and deals are not as common

• Overseas: Offering fee-free spending when you’re abroad, overseas business credit cards can be ideal if you regularly need to travel for business

• Cashback: Some business credit cards offer cashback, giving you a percentage of your yearly spend back in your account

• Air miles: Other business cards enable you to earn air miles whenever you spend, which you can then redeem on flights or hotel stays

• Bad credit: Designed for businesses with little or no credit history, these business credit cards typically offer lower credit limits and higher interest rates. However, if you use the card carefully and build your business credit score, you could secure better deals in the future

Who is eligible for a business credit card?

You can often apply for a business credit card whether you’re a sole trader, partnership or limited company. However, this depends on the provider, and some cards might target certain business types – for example, they might require you to have registered with Companies House.

You must also be at least 18 years old and lenders usually ask that you’re a UK resident with a UK-registered business. Providers might specify minimum annual turnover or trading requirements, too, so check carefully. In some cases, you might need to hold a business bank account with that provider before you can apply for a business credit card. 

What protection does a business credit card offer? 

Business credit cards don’t offer Section 75 protection. This only applies to personal credit cards, where it covers purchases of more than £100 and up to £30,000 if something goes wrong.

However, many business credit cards offer their own type of protection, such as: 

• Online guarantees: This protects against fraudulent online use of your card

• Misuse insurance: This covers any unauthorised use of the card by employees

• Extra fraud insurance: This provides extra coverage for any form of fraud or misuse

• Travel insurance: Some providers include complimentary travel insurance, which can cover medical expenses, lost luggage and accidents when you’re travelling on business

How to apply for a business credit card

First, compare your options. You need to consider exactly what you want from your business credit card.

If your business is just starting out, you might want to look for a business credit card designed for those with no credit history. On the other hand, if your business is well established, you might want to earn rewards, such as cashback, on your spending. Or, if you regularly travel overseas, look for a business credit card with fee-free foreign spending. 

You should also check interest rates and fees, as well as the qualification criteria, because there’s no point applying for a card you aren’t eligible for. 

Once you’ve chosen a business credit card, it’s usually fastest to apply online. However, you might also be able to apply over the phone, or in person if your card provider has bank branches. 

As part of the application process, you need to provide both personal and business details. The provider then considers your application, looking at your business’s financial health and affordability to work out whether you can comfortably meet the repayments. The card provider must also carry out a full credit check on your business. 

Tips for using a business credit card

If your application for a business credit card is successful, it’s important to use your card wisely. The following tips can help:

• Pay your balance in full each month: To avoid interest charges, it’s best to pay off the full balance every month if you can afford to

• Set up a monthly Direct Debit: This ensures you never miss a payment, so you avoid penalty fees. If you can’t pay off the full balance, set your Direct Debit for at least the minimum monthly repayment

• Set spending limits: Implement spending limits for employees to prevent unauthorised purchases. It can also pay to set your own spending limits, so you don’t rack up too much debt

• Use perks carefully: Resist the temptation to spend more than you can afford in a bid to earn more rewards on the card

• Only use your card for business expenses: This helps keep your business and personal finances separate, making accounting, tax returns and potential HMRC audits much simpler

Business credit card alternatives

If you’re not sure whether a business credit card is right for your company, there are several alternatives to consider, such as: 

• Business overdrafts: If you have a business bank account, you may be able to borrow through a business overdraft. This is another flexible way to borrow money when you need it, but interest rates are usually high

• Business loans: If you need to borrow a large lump sum, you can do this with a business loan and repay the amount borrowed (plus interest) over a set term in monthly instalments. Some business loans are specifically for startups

• Asset finance: If you don’t have the funds to pay for machinery or equipment up front, asset finance enables you to cover the cost in regular instalments over a set term

• Invoice finance: Here, you use your business’s unpaid invoices as collateral, enabling a finance company to advance you a percentage of their value. You then repay the amount once your customers settle their invoices

Read more …

• What is a business credit card?

• How to choose a business credit card

• Can you use a personal credit card for business?

• Should you get a business credit card or business loan?