Business credit cards

Quick facts

u003cem data-rich-text-format-boundary=u0022trueu0022u003eBusiness credit cards, also known as corporate credit cards, work in the same way as a personal credit cards. They come with a set credit limit and you can roll over your balance from month to month, though your spending will accrue interest, based on the APR for which you qualified.u003c/emu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cemu003e u003c/emu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eA business credit card is a simple way of gaining access to working capital, allowing you to improve your company’s cash flow during slower periods or free up cash to fund the expansion of your business.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eMost business credit cards have an interest-free period of up to three months – any money borrowed that is paid off before this point does not accrue interest, making this an inexpensive option if you’re able to reliably pay off your debts. Your credit limit is applied on a rolling basis, so once any debt has been paid, you can begin loaning up to the credit limit again.

Perhaps you’re a small business owner who’s found it difficult to get a traditional u003ca href=u0022 loanu003c/au003e. You can of course hit up your network of deep-pocketed friends… but if they aren’t forthcoming, a business credit card can be a good option. Like a u003ca href=u0022 credit lineu003c/au003e, a business credit card can be your emergency lending, up to a limit. This limit will depend on the your credit rating, trading history, revenue and profit.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eA business credit card is a useful way to manage cash flow when you don’t have enough working capital. It’s also useful for keeping track of the expenses your staff might incur (several cards can be used on the same account though the credit limit will remain the same).u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eOnce you’ve set up your credit card, you can improve your business credit rating by observing the credit limit and paying back the balance each month and on time.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eOtherwise you can roll over your balance from month to month, paying only the minimum amount required (if there is a minimum), and accruing interest based on the effective APR for which you qualified.

If you run a small company, a business credit card is a simple and flexible way of managing your expenses and ensure you always have access to working capital. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eHowever, the relatively low credit limits and high interest payments mean that other financing options may be more attractive. Merchant cash advances, for example, offer lump sums repayable via a percentage of your card takings – so if your takings drop, your repayment rate will drop too, ensuring repayments don’t eat into your profits.

Unlike bank loans or credit lines, application for a business credit card is fairly simple – if you have a good credit history and you have established a successful business, you should not find it difficult to qualify. This is of particular benefit to smaller businesses, as they are more likely to experience cash flow issues – and a business credit card offers instant access to extra funds that can be used to purchase stock or equipment, ensuring your business remains profitable.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eAn additional benefit of a business credit card is that it allows you to build up your business credit – if a lender sees that you reliably pay off your business credit card, they will be more included to approve you for a bank loan or an increased credit limit in the future. Some lenders even offer perks such as air miles and cashback offers and, because business credit cards are unsecured, there is no risk to your home in the event that you are unable to pay back your debts.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eAs with all financing options, however, it is important to be aware of the potential drawbacks. Interest rates on business credit cards tend to be higher than other forms of working capital finance and, along with the annual fee for owning the credit card and fees for late repayments, can prove an expensive option. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eThe amount you can borrow via a business credit card is also likely to be lower than other financing options, so if you require a lump sum to cover a one-off payment or investment, you may wish to consider other working capital finance possibilities.

You might also want to consider other types of u003ca href=u0022 capital financeu003c/au003e.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eWithin these different types of business loan – of course there is some overlap between them – you’ll find some that better suit your particular situation, e.g. you might be looking for startup finance, equipment finance or u003ca href=u0022 capital financeu003c/au003e.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eDepending on how long you think you’d take to repay the loan you can consider:rnu003culu003ern tu003cliu003eu003ca href=u0022 overdraftu003c/au003eu003c/liu003ern tu003cliu003eshort-term or medium-term u003ca href=u0022 loanu003c/au003e (i.e. u003ca href=u0022 capital loanu003c/au003e)u003c/liu003ern tu003cliu003eshort-term business loans – usually between 3 and 18 months (often referred to as u003ca href=u0022 capital loansu003c/au003e)u003c/liu003ern tu003cliu003e‘term’ loans – usually between two and five years (‘term’ means medium- or long-term)u003c/liu003ern tu003cliu003every short-term loans – including u003ca href=u0022 creditu003cemu003e u003c/emu003efacilitiesu003c/au003e and other business overdraft alternatives.u003c/liu003ern tu003cliu003elong-term loans – these can run from 3 to 30 years, require monthly or quarterly payments from cash flow or profit, might restrict other financial commitments (e.g. debts, dividends or principals’ salaries), and can require an amount of profit set aside for loan repaymentu003c/liu003ern tu003cliu003eballoon loans – relatively small monthly payments, ending with final ‘balloon’ payment to pay off the remaining loan balance.u003c/liu003ernu003c/ulu003e

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