Finding the best credit card for your business

Many people find business credit cards useful. Learn more about how they work, the benefits of having one, and how to find the best deal.

What are business credit cards?

A business credit card is intended to be used only by the employees of a business. They work similarly to personal credit cards, with the key difference being they’re registered to a business instead of an individual.

When using a credit card, you’re borrowing from your card provider – usually a bank or credit union – to make purchases and then pay the balance back.

A business credit card is typically used primarily for business expenses.

Getting a business credit card can help you to build a credit history for your company, which is essential if you plan to apply for business loans and other credit products in the future.

How do business credit cards work?

Business credit cards usually use revolving credit, which allows you to borrow up to your credit limit. Any balance left at the end of the month is rolled over into the following month, making it easier to track and control cash flow. If the money borrowed on a business credit card isn’t repaid within any interest-free period offered to you, your revolving credit is typically charged interest that you’ll have to pay back plus the amount you initially borrowed.

Most business credit cards have a minimum 56-day interest-free period. If you pay off what you’ve borrowed in full within this timeframe, you won’t be charged interest on top.

The interest you have to pay will depend on the credit card’s APR (annual percentage rate).

The APR of a business credit card can range from 20% to around 50%, and the APR you’re offered will depend on your company’s credit rating and financial history – if it has one. Your personal credit history may be checked instead if you’ve recently set up your company.

Using a business credit card is very similar to a personal credit card, although business cards are likely to have a higher credit limit. Business credit cards can be used to make purchases, transfer a balance, or withdraw cash from a cash point. Some of these services may have additional charges or a unique interest rate applied to them, so to get the most out of your business credit card, it’s wise to determine how you want to use it to find the best rates for you.

For example, you may be charged a different interest rate on making purchases than withdrawing cash from a cash point.

Extra Perks

What sets business credit cards apart from personal business cards is that they usually come with unique perks and rewards.

The most common reward is cashback on your spending, with a typical rate being between 1% to 5% on the amount you spend. For example, with 1% cashback, if you spend £100 on your business credit card, you’ll get £1 back.

Some reward business credit cards only offer cashback at certain establishments, such as specific restaurants and retailers, so you’ll only get your cash back if you spend on your credit card there.

Some business credit cards also offer insurance, 0% interest deals, and reward points that can be exchanged for products or vouchers.

To benefit from these types of credit card perks, you’ll likely need to pay an annual fee ranging from £30-£150. Some cards also require your business to have a minimum annual income, meaning some cards may be inaccessible for new or small businesses. Instead, small business credit cards offer smaller credit limits and little or no perks.

Who is eligible for a business credit card?

Any sized business is eligible for a business credit card; however, you may get better rates and a higher credit limit if your company is larger and has been trading for many years.

Your business needs to be based and registered in the UK to get a business credit card. It also needs to have started trading before you can apply for a business credit card.

All members and shareholders of the business also need to be over 18 for you to be eligible to apply for a business credit card.

Your company’s credit history may also determine your eligibility for a business credit card. Because this is a type of unsecured loan – meaning no asset can be taken away if you fail to pay your loans – a credit check will need to be done. Usually, this is done on the business, not the individual who owns it.

However, if the business is new or doesn’t have much financial history, some card providers will check the Founder’s personal credit report instead.

If your credit score is poor, you may not be offered a business credit card. You could apply for credit cards designed for businesses with bad credit, however, you may not get the best rates and you’re likely to be limited to a smaller credit limit.

Before applying for a business credit card, it’s important to do everything you can to improve your credit score.

Does my business have its own credit score, and how does it affect eligibility?

As your business grows, it will develop its own credit history. When looking to get business loans or borrow other forms of business credit, this credit history will be used to determine your future borrowing terms.

If your business is new and doesn’t have a lot of financial history, it can be hard to get a business credit card, especially if you want one that offers rewards and perks.

When first applying for a business credit card, your personal credit report may be used instead if your business has no credit history.

Once you get a business credit card, you can use it to help improve your business’s credit score. By paying off what you borrow in full, having a good credit utilisation ratio, and not missing repayments, you’ll be able to build your business’s credit score, allowing you to get better business credit cards in the future with better rates and higher credit limits.

How do I open a business credit card?

To open a business credit card, you can either apply online or in-person with a bank of your choice – although you may need to have a business account with the same bank before getting a business credit card.

You need to be the owner of the business or a sole trader to open a business credit card, and you’ll have to provide various documentation to prove this.

When opening a business credit card, you’ll need to provide information on:

  • Your business’s name
  • The type of business (sole trader, limited company, etc.)
  • The sector your business operates in
  • The number of people working for your business
  • When your business was first founded
  • What you intend to use the card for
  • Your desired credit limit
  • The countries you trade in

If you want your employees to have access to a business credit card, you’ll also have to provide their details. You’ll need to confirm their:

  • Full name
  • Date of birth
  • Three years’ worth of addresses
  • Contact details

When applying for a business credit card, an individual will still need to present their name on the card despite it being for the entire business. This will usually be the owner of the company.

If you’re the named person on a business card, you may be personally liable for any outstanding debts or issues. It means if the business credit card isn’t managed well, your personal credit history may be negatively affected, in addition to the credit history of the business.

Do business credit cards have minimum payments?

When paying back the amount you’ve borrowed, if you’re unable to pay it off in full, there will be a minimum amount you’ll have to pay back each month. To ensure you maintain a good credit score for your business, you should make these minimum payments.

Paying back your minimum amount will not stop interest from being charged on your outstanding balance; it just means it will prevent your credit card from defaulting.

Are there any costs associated with business credit cards?

The main cost associated with credit cards for businesses is the interest you may have to pay on any outstanding balances.

If you fail to pay off what you’ve borrowed within your interest-free period, you will have to pay a percentage of the amount you’ve borrowed.

This percentage is displayed as APR and you may incur other fees and charges you’ll have to pay on top of your balance. However, interest can also be displayed as % p.a on some cards. This stands for percentage per annum and calculates the interest you’ll have to pay in a year.

In addition to the interest rate, other costs may include an annual fee for simply keeping the card open. This usually applies to corporate credit cards that offer rewards and range from around £30 to £150 a year.

There will also be various charges you may have to pay, depending on your card provider. You may be charged a withdrawal fee each time you use a cashpoint, which can be a percentage of the amount you withdrew.

You can also be charged late fees if you miss payments, which can add to the cost of having a business credit card.

If you manage your business credit card well and pay off what you’ve borrowed in total, there will be fewer fees and costs.

What are the advantages of business credit cards?

A business credit card provides many benefits to a business as a whole and the staff in it. With a business credit card, you can:

  • Manage the cash flow of your business effectively
  • Track your spending and expenses
  • Separate your personal and business expenses
  • Remove the need for petty cash
  • Build the credit score of your business, allowing you to access better interest rates on loans and other borrowing
  • Earn rewards such as cashback
  • Get insurance as an added benefit of having an account

What are the disadvantages of business credit cards?

Although getting a business credit card is a good idea and comes with many benefits, there are a few disadvantages you’ll need to consider and be aware of. These are:

  • Most business credit cards come with annual fees
  • If not managed well, business credit cards can harm your personal credit history
  • Your personal credit report may determine your interest rates and credit limit if your business is new
  • There’s a risk of employees abusing their business credit card

You can mitigate these disadvantages by searching for the best business credit card deals. Some top providers may offer perks and other incentives to counteract these disadvantages, making them more worthwhile, so it’s always good to compare business credit cards before applying for one.

Are there any alternatives to business credit cards?

Depending on your reason for getting a business credit card, a few alternatives may better suit your situation.

Business current account

If you’re considering getting a business credit card to keep your personal and business finances separate, it may be worth getting a business current account instead.

You’ll be able to make and receive payments as your business, allowing you to track your expenditure better while ensuring your business and personal funds don’t get mixed up.

Getting a business current account can also help you build a financial history, which can be useful before applying for a business credit card. Responsible use of a business current account may give you access to better rates and credit limits on your future borrowing.

Invoice financing

If your business’s primary payment method is invoicing, it can be frustrating when invoices are paid late. This can interrupt your cash flow and make it tough to make purchases as you wait for the payment to come through before you have the budget to buy things.

If you’re getting a business credit card to fix this issue, invoice financing may be a helpful alternative by selling your unpaid invoices to a lender, who will give you the majority of the value of your invoices immediately, giving you access to consistent cash flow.

When doing this, you won’t receive the total amount of the invoice, because the lender you’ve sold them to will take a commission, but it’s a way to get some income if a customer isn’t paying on time.

Business Loan

If you’re getting a business credit card because you need additional funds to finance a new project, an alternative could be to apply for a business loan instead.

Getting a business loan could allow you to borrow more without harming your credit utilisation score. You’ll have to pay interest on a loan, and it may only be an option if you already have a good credit score, but if you need money fast, it could be an option for your business.

Business credit cards FAQs

Will a business credit card affect my personal credit score?

If you’re the primary account holder of a business credit card – meaning it’s registered in your name – how you use your business credit card can affect your personal credit score. 

If you miss payments and build up a large amount of debt on your business credit card, this can harm your personal score.

The opposite is also true: if you manage your business card well, stay well within your credit limit and repay what you’ve borrowed in full, it can slightly improve your personal credit report. 

When applying for a business credit card, your personal credit rating may be checked, especially if your business doesn’t have much financial history. This will likely be a hard credit check and will leave a mark on your report. Having too many hard credit checks in quick succession can harm your personal credit report. 

Do business credit cards come with perks?

Your business credit card will likely come with some perks. These will differ depending on the business credit card you get, but common perks include cash back on purchases, free insurance, discounts at certain stores, 0% interest-free periods, and reward points that can be exchanged for certain goods and services.

These types of deals will likely come with an annual fee and only be offered to businesses with a good credit history and a large income.

Can I give credit cards to several employees?

Yes, you can give your employees their own business credit cards for business expenses. Doing this can help the business better manage its expenditure because expenses can be managed in one place.

Does section 75 apply to business credit cards?

Section 75 applies to most personal and business credit cards, although it’s important to double-check before you apply. 

Section 75 is a form of protection covering purchases ranging from £100 to £30,000. If a purchase made by your credit card in this price range is faulty, damaged, or never arrived, your credit card company will help you get your money back.

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