A Guide To Business Credit Cards
Offered by virtually all mainstream lenders including banks credit unions, trade bodies and building societies, a business credit card is basically a credit card registered in the name of a business. This means that similar to a personal credit card, a business credit card has a credit limit, an agreed interest rate and the minimum balance that you must pay off every month. Business credit cards generally offer a higher credit limit than personal credit cards.
What’s more, depending on your business credit and your personal credit score, you can negotiate your credit limit with your lender. In general, the credit limit ranges from £1,000 and £10,000. It is worth noting that you can apply for multiple cards if you want to issue your staff members with these cards. However, because all the cards will be issued under one business account, they will share a common credit limit. Examples of popular business credit cards in the UK include RBS, Santander, Lloyds, NatWest and Barclays business credit cards. With that in mind, here is some more information of these cards.
Business Credit Card Eligibility
To be eligible for these cards, you have to meet certain requirements. While these requirements generally vary from one bank to another, virtually all card issuers will consider you business’s annual turnover over the last six years or so, as well as whether you have a recent criminal record. Additionally, some lenders may require you to be an existing customer with an active bank account in order to qualify for a business credit card. If your business is new and therefore has no credit history, your lender will likely consider your business’s financial projections as well as your personal credit history. Additionally, your lender may require you to provide copies of your business plan and bank statements.
Your credit limit can range from a few thousand pounds to tens of thousands of pounds depending on various including your business’s credit rating, turnover, liquidity and size. Your age and credit history may also affect your credit limit. In general, if you tick all the right boxes, you would be able to get a higher credit limit easily.
As with your personal credit card, you will need to pay off interest on any debt that you fail to pay off within your billing cycle. In general, your card issuer will send your monthly bill every month and allow you 28 days or so to pay off your debt. When you get you bill, you can either pay off the entire debt or the stipulated minimum amount, which is usually two to three percent of the total bill. If you fail to clear your entire bill, you will incur debit interest on the balance, increasing your debt.
Business Charge Cards Versus Business Credit Cards
A business charge card and a business credit care are similar in many respects. However, the former requires you to pay off your debt at the end of each billing cycle, whereas the latter allows you to roll over the balance on your account. Because charge cards do not allow cardholders to accumulate a huge debt over a long period, they are particularly ideal for businesses that want to manage their purchases more effectively.
Some of the fees associate with these cards including debit interest and an annual account maintenance fee, which, on average, is about £30 per card. In addition to these fees, your lender may also charge you individual fees on particular transactions either at a set amount or as a percentage of a transaction’s total amount. Moreover, your lender may impose fees on your payment transactions too.
The Benefits of Businesses Credit Cards
In general, these cards offer all the convenience associated with personal credit cards and much more. Some of the benefits of these cards include:
Convenience and flexibility – Because business credit cards allow entrepreneurs to borrow money at will, they help prevent liquidity risks. What’s more, they offer great flexibility in terms of borrowing and payment schedules. More specifically, you can borrow whenever you wish and repay the debt at your own convenience within the billing cycle.
Easy qualification — Because most credit card companies do not have stringent qualification requirements, it is relatively easy to qualify for these cards. In most cases, all you need to get one of these cards is a good credit history and an established business.
Incentives and perks – To entice customers, these cards often offer a wide range of incentives including business advice, cheaper rates on commercial services and products. It is worth noting that these incentives may be different from the incentives offered by personal credit cards. For instance, because credit card companies normally expect businesses to spend more money compared to the average person, business credit cards offer larger sign-up bonuses compared to personal credit cards. Additionally, most of these cards offer an interest-free period of up to two months on purchases as well as flexible replaying terms to help businesses, particularly those with irregular cash-flow, manage their cash-flow requirements.
To support fledgling entrepreneurs get on their feet, some cards offer a 0% introductory APR. Of course, even with a 0% introductory business credit card, you should always keep your debt level at a manageable level.
Because entrepreneurs generally spend a lot of money on travel, most of these cards also offer travel perks such as access to an airport’s VIP lounge and hotel discounts during business travel.
Financial management – These cards help entrepreneurs separate their business spending separate from their personal spending, improving a business’s bookkeeping and accounting. Furthermore, they make it relatively easier for employees to make purchases and more importantly, allow business owners to monitor employees’ business purchases.
Build credit — A business credit card can help you build as well as improve your business’s credit history.
Similar to any other financial product, these cards have their share of disadvantages including:
Expensive source of business financing — These cards typically feature a high APR and other associated fees, which tend to be on the higher side. Because of these, these cards offer an expensive finance option.
Security issues — Card theft is a problem in the UK. For instance, according to figures from UK Finance, a trade body, cardholders in the UK lost about £287 million due to card theft in the first half of 2017 alone. In the same year, Tesco Bank had to reimburse some of its customers nearly £3 million after a credit fraud attack. This means that these cards may pose a security threat to your business, especially when they fall into the wrong hands, leading to fraudulent charges.
May affect your personal credit – In some cases, your lender may hold you personally liable for your credit card debt.
Business Credit Cards versus Other Financing Options
Compared to other business financing options offered by mainstream lenders, such as invoice factoring and business loans, these cards typically carry a more expensive annual percentage rate (APR), which is usually comparable to overdraft interest. Thankfully, you can lower the interest rate by making accelerated payments.
Are Card Charges Tax Deductible?
When preparing your taxes, business credit card charges can be an allowable expense, meaning you can claim them. However, you should always consult with your accountant before you do that.
Business Credit Cards and Your Personal Finances
Whether or not your business credit cards will affect your personal finances and vice versa depends on several factors including the nature of your business and your position in the business. For instance, if you’re a sole trader or a partner in a partnership business, your lender will likely hold you liable for your business debt. On the other hand, if you run a limited company, your business debt may not affect your personal finances.
Business credit card are similar to personal credit cards in that the grant cardholders instant access to credit facilities. However, they generally offer more incentives than personal credit cards. This makes them particularly useful for small businesses with irregular cash flow, meaning they regularly require a bridging loan. What’s more, you can deduct your business credit card charges from your taxes. Some of the benefits of these cards include rewards and incentives, easy access to credit facilities and relatively easy qualification. Some of the inherent disadvantages of these cards include security issues and a relatively high APR. Depending on the type of business you operate, your credit card debt could affect your personal finances.