Business credit cards

A business credit card works in a similar way to a personal credit card but is held by a business rather than an individual. Businesses of any size can use a business credit card, from startups, sole traders and small businesses, to big corporations and limited companies.

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In similar way to a personal credit card, a business credit card is often the first lending product a business might use. Lenders often want to see some form of credit history when lending larger amounts, so a business credit card might be an easy way to prove your reliably as a borrower. It can also be a handy tool in covering short term unexpected costs when you know you have the money coming in within the repayment period receiving money through the repayment period. If you are looking for a better way to manage your business spending and to boost your company’s credit profile.

 
Andrea Reynolds, CEO & Founder
Andrea Reynolds
CEO & Founder

A word from Andrea

"Business credit cards are designed to help small businesses grow. They can be used to pay for things such as office equipment, advertising, marketing campaigns, existing debt, bills and much more. Credit cards give your business access to a line of credit with a fixed amount of money. There are also no set payments for the money borrowed, so you won’t need to worry about repaying the full balance every month, just the minimum payment."

What is a business credit card?

A business credit card is simply a credit card designed for business purposes. Also known as a corporate credit card, a business credit card enables businesses to borrow flexibly up to their set credit limit. Businesses can pay for goods and services on the card and then pay off the amount borrowed at a later date.

A business credit card is a simple way of gaining access to working capital, improving cash flow during slower periods, or helping your business build its credit score for future loans.

How do they work?

Business credit cards work in the same way as personal credit cards, but the credit is in the name of the business, not the individual. Business credit cards give you access to a revolving line of credit and a set credit limit. You can then spend on the card and repay the amount borrowed in monthly instalments.

Most business credit cards offer an interest-free period on purchases for up to 56 days. If you pay off your balance in full by the statement due date, you won’t be charged interest. If not, you will usually pay interest on the remaining balance. Whatever your circumstances, you must pay at least the minimum monthly repayment to avoid paying extra fees and charges.

Some business credit cards offer additional perks such as cashback or interest-free spending for a number of months, so it’s worth factoring this in to your comparison.

What can I use a business credit card for?

A business credit card should be used for business expenses. This can include buying office supplies or furniture, paying invoices, or paying for travel and employee expenses. Using a business credit card will ensure company transactions are kept separate from personal ones.

It’s also possible to issue multiple credit cards to employees on the one account, so that they can use their card to pay for business expenses.

What are the interest rates?

Interest rates on business credit cards will vary depending on the provider, but tend to be higher compared to those on personal credit cards. If your business has a good credit rating, you’re likely to be offered a more competitive interest rate.

A few business credit cards will also offer an extended interest-free period for a number of months, so you won’t need to pay interest during that time. But if you don’t qualify for one of these cards, you can still avoid paying interest by paying off your balance in full each month.

Advantages

There are a number of advantages to using a business credit card, including the following benefits:

  • Separates your business and personal finances. This will make it easier to track income and expenses and simplify your budgeting. It’ll also make it easier to file your tax return.
  • Improves cashflow. You’ll have access to a line of credit to help you purchase equipment and supplies even if you are temporarily short of funds.
  • Build your business credit score. If you reliably pay off your business credit card, your business credit score will improve and you’re more likely to be approved for a bank loan or an increased credit limit in the future.
  • Can be easier to get accepted. You might find it easier to get accepted for a business credit card compared to a business loan.
  • Additional cards for employees. You will be able to issue credit cards to your staff which can make it easier to manage employee expenses.
  • Additional perks. Some business credit cards offer perks such as cashback, travel insurance or air miles.

Are there any disadvantages?

There are also several disadvantages to be aware of when considering a business credit card. These include:

  • Lack of purchase protection. Unlike personal credit cards, business credit card purchases will not be covered under Section 75 of the Consumer Credit Act. However, some card providers will offer guarantees to protect you against fraudulent online use.
  • Risk of building up debt. It can be easy to overspend on a credit card and if not used carefully, you could end up struggling to repay it.
  • Risk of damaging your credit score. If you do not keep up with your monthly repayments, this can have a negative effect on your business credit score.
  • High interest and fees. Interest rates on business credit cards tend to be higher than other options and you might have to pay an annual fee. There are also fees for late payments.
  • Lower borrowing amounts. The amount you can borrow with a business credit card is likely to be lower than other financing options.

Business credit cards vs. personal credit cards - how are they different?

Although business credit cards work in a similar way to personal credit cards, there are a number of differences to be aware of.

For a start, business credit cards tend to come with higher credit limits compared to personal credit cards as it will be based on your business income, not just your personal income. Interest rates tend to be higher too.

A business credit card can also help you build your business credit score as the credit will be in the company’s name, not your personal name. A business credit card can also be used by multiple people in your organisation.

Another important difference is that unlike personal credit cards, purchases on a business credit card will not be protected under Section 75 of the Consumer Credit Act. This means that if something goes wrong with your purchase, for example it’s faulty or doesn’t arrive, you may find it harder to get your money back. However, some card providers will offer online guarantees to cover you against fraudulent online use, or insurance to cover misuse of the card by an employee.

Does a business credit card affect my personal credit score?

It can do. If your business is fairly new and has a limited credit history, some credit card providers will assess your personal credit record when determining whether to let you borrow. If a hard credit search is carried out on your personal credit record, this can cause your personal credit score to drop slightly (though it usually recovers).

Additionally, if you are the primary account holder on a business credit card and you have signed a personal guarantee, your personal credit score and your business credit score are likely to be affected by how you manage your card. If you make your repayments on time, your credit score should improve. But if you miss payments or build up a lot of debt, your personal credit score could go down.  

Your personal credit score will also be affected if you are a sole trader as there will be no legal separation between your personal and business finances.

Do business credit cards require a personal guarantee?

A personal guarantee will often be a requirement if you run a small business or a startup with a limited credit history. A personal guarantee is a legally binding commitment in which you agree to accept personal responsibility for repaying your business credit card if the business is unable to. Personal guarantees are usually signed by a manager, director or owner of the company.

How can I get a credit card for my startup?

Your first step is to check the eligibility criteria carefully to make sure you qualify. Some card providers will require you to have a minimum annual turnover and/or have been trading for a set amount of time, while others will be more flexible.

Check exactly what documents you will need when applying for your credit card – you might need to provide your estimated annual turnover, as well as copies of bank statements and business plans before your application can be accepted. You might also need to sign a personal guarantee.

Some card providers will also offer an eligibility checker to show you the cards you’re most likely to get accepted for. Because they use a “soft” search of your credit file, they won’t hurt your credit record and they can help prevent you applying for credit cards you have no chance of getting.  

Can sole traders get business credit cards?

Yes, sole traders can get a business credit card. Just check the eligibility criteria carefully first. Note that if you’re a sole trader, there will be no legal distinction between your business and personal finances which means lenders will look at your personal credit score to determine your creditworthiness.  

Can I get a business credit card with bad credit?

Yes, it is still possible to get a business credit card with bad credit, but you’re likely to have fewer providers to choose from. Those providers that are willing to accept you might offer higher interest rates and lower starting credit limits.

Note that bad credit isn’t strictly the same as a limited credit history. Limited credit usually means your business is just starting out and hasn’t borrowed before. This can make it difficult for lenders to assess your creditworthiness which is why they might look at your personal credit record instead.

If you have bad credit, on the other hand, it usually means you’ve made mistakes such as failing to pay bills on time or missing credit card or loan repayments. Lenders might be more reluctant to let you borrow again as a result.

Will there be a credit check when I apply?

Yes, when you apply for a business credit card, a “hard” credit search will be carried out. This is an in-depth look into your credit history and it will be visible on your credit record. This means that other companies will be able to see if you’ve been applying for credit. Too many applications for credit in a short amount of time can make you look desperate for money and suggest you have financial problems. This could deter some lenders from letting you borrow in the future.   

Tips for getting approved

To increase your chances of getting approved for a business credit card it’s crucial that you check the eligibility criteria carefully.

If you haven’t been trading for long and have yet to build up a business credit history, lenders might look at your personal credit score to get a sense of how reliable you are as a borrower. It’s therefore worth checking your personal credit record to see what shape it’s in. If it’s not good, there are steps you can take to improve it, including paying bills on time, checking you’re on the electoral roll and correcting any errors on your credit report.

Bear in mind that some business credit cards are easier to get accepted for than others, so if the provider offers an eligibility checker, it’s worth using this so that you understand which cards you’re most likely to get accepted for, before making your application in full.

Frequently asked questions

How easy it is to get approved for a business credit card will depend on factors such as how long you’ve been trading, your turnover and your credit history. If you’ve been trading for a number of years, have a high annual turnover and a good credit record, you’re likely to find it easier to get approved for a business credit card.

The average credit limit on a business credit card will be much higher compared to a personal credit card. Some will offer maximum credit limits of around £10,000, but others will offer limits as high as £250,000, if not more.

Yes, provided you use your business credit card carefully and repay the balance on time, you’ll be able to build a business credit record. This can help you get access to better deals in the future.

  • When you have decided that a business credit card is right for you, the next decision is which provider to use. Which one will work best for you and your business is individual since different providers offer different rewards with, so you need to think about what you need from your business credit card.

    • One with low APR or an interest free period – if you know you will need it to borrow money through it;
    • Cards for several employees – make sure the provider is offering multiple cards per account;
    • Great discounts or benefits – some offers cashback, discounts on certain stores, reward points or a whole other benefit that suits you;
    • Travel benefits – does you employers need to make foreign transactions or maybe you need travel insurance as one of your perks some providers offers that;
    • Do employees need to make overseas trips? Some cards offer favourable exchange rates and include travel insurance.

Yes, it’s perfectly legal to use a personal credit card for business purposes. However, doing so can make it harder for budgeting and tax purposes as it can be difficult to distinguish between personal and business transactions. You are also unlikely to have as high a credit limit with a personal card.

Yes, it is possible to get approved for a business credit card if you have no revenue, but you’ll usually be required to sign a personal guarantee.

No, you will need to have a business to be able to apply for a business credit card. However, this doesn’t mean you need to be running a huge company. You can still apply for a business credit card if you’re a sole trader, for instance.

Yes, annual fees on business credit cards are tax deductible. If you complete a self-assessment tax form, allowable expenses, including business card annual fees, can be deducted from your taxable profit.

Yes, business credit card interest is tax deductible. Remember this only applies to business credit cards and interest associated with business expenditure, not personal expenses.

No, any reward you earn through your business credit card, such as air miles, is not considered income and is therefore not taxable. You can find out more on the gov.uk website.

No, business credit card cashback is not taxable as it is not considered income.

A prepaid corporate card works in a similar way to a debit card but must be pre-loaded with cash. The card can then be used to make purchases or withdraw cash from an ATM. Prepaid corporate cards are a good option for budgeting as you, or your employees, can only spend the amount that’s been loaded on to the card. Applying for a prepaid corporate card also won’t require a credit check. 

A business loan enables you to borrow a lump sum of cash which you then repay in fixed monthly instalments. By comparison, a business credit card gives you access to a line of credit which you can use as and when required, up to your set credit limit. Monthly repayments are flexible, rather than fixed, although you must make at least the minimum monthly repayment.

Business loans typically let you borrow more compared to a credit card and interest rates can be more competitive. However, they can be harder to qualify for.

Unlike a credit card that lets you borrow money up to a set limit, a business charge card has no pre-set spending limit for purchases, but you must pay off the card’s full balance each billing period. This means you cannot carry it over from month to month as you can with a credit card. If you fail to pay off the balance in full, you will be charged a fee and this can often be higher than the interest on a credit card. Late payments can also negatively affect your business credit score.

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Written by

Rachel Wait

Rachel has been writing about finance and consumer affairs for over a decade, helping people to get to grips with their finances and cut through the jargon. She's written for a range of websites and national newspapers including MoneySuperMarket, Money to the Masses, Forbes UK, and Mail on Sunday. Rachel has covered almost every financial topic, from car insurance and credit cards, to business bank accounts and mortgages.

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