Business credit cards

If you’re a small business owner struggling to secure a traditional business loan, a business credit card can be a viable alternative. Like a revolving credit line, a business credit card can serve as emergency funding, up to a predetermined limit. This limit will be based on your credit rating, trading history, revenue, and profit.

A business credit card is particularly useful for managing cash flow when working capital is tight. It also helps track expenses incurred by your staff, as multiple cards can be issued under the same account, though the overall credit limit remains unchanged.

By responsibly using your business credit card—adhering to the credit limit and making timely payments—you can improve your business credit rating. If needed, you can also roll over your balance from month to month, paying only the minimum required (if there is one) and accruing interest based on the 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.

However, 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, applying for a business credit card is relatively straightforward. If you have a good credit history and have established a successful business, you should find it easy to qualify. This simplicity is particularly beneficial for smaller businesses, which are more likely to experience cash flow issues. A business credit card offers instant access to additional funds that can be used to purchase stock or equipment, ensuring your business remains profitable.

Another advantage of a business credit card is that it helps build your business credit. By reliably paying off your business credit card, you make it more likely that a lender will approve you for a bank loan or an increased credit limit in the future. Some lenders even offer perks such as air miles or cashback offers. Additionally, because business credit cards are unsecured, there is no risk to your personal assets, such as your home, if you’re unable to repay your debts.

However, it’s important to be aware of potential drawbacks. Interest rates on business credit cards are typically higher than other forms of working capital finance. Along with the annual fee for the credit card and fees for late payments, this can make them an expensive option. Additionally, the amount you can borrow via a business credit card is usually lower than other financing options. If you require a larger sum for a one-time payment or investment, you may need to explore other working capital finance possibilities.

You might also want to consider other types of working capital finance.

Within these different types of business loans, there is often some overlap between them. You’ll find options that better suit your particular situation, whether you’re looking for startup finance, equipment finance, or working capital finance.

Depending on how long you expect to take to repay the loan, you can consider:

• Business overdraft
• Short-term or medium-term business loans (often referred to as working capital loans)
• Short-term business loans, typically between 3 and 18 months, which are often referred to as working capital loans
• ‘Term’ loans, usually between two and five years (term here means medium- or long-term)
• Very short-term loans, including revolving credit facilities and other business overdraft alternatives
• Long-term loans, which can range from 3 to 30 years. These 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 a portion of profit to be set aside for loan repayment
• Balloon loans, which involve relatively small monthly payments, ending with a final ‘balloon’ payment to settle the remaining loan balance.

Each option has its own advantages and considerations, so selecting the right one depends on your specific business needs and financial situation.