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Is it a good idea to get a business credit card?

Managed carefully, business credit cards could be an asset to your company.

You can use them to pay for essential costs, goods or services for the business as required. And issuing cards to responsible employees could help you easily keep track of and process their expenses, too.

They can also help build a good credit profile for your business, you could even get perks and rewards for spending on them.

What's the difference between business charge cards and business credit cards?

There are four main differences between business charge cards and business credit cards: spending limits, monthly payments, interest and availability.

Business charge cards

Business charge cards don't have a pre-set spending limit - how much you can spend is based on things like your credit and payment history, how you use it and the general state of the business' finances. Business charge cards are also much harder to come by as fewer providers offer them.

Unlike with a credit card, with a business charge card you must pay the full cost of your balance for that month. Because of this, there's no interest to pay on a business charge card.

Business credit cards

Business credit cards are more widely available and they do have a pre-determined spending limit.

With a business credit card, you can choose to only pay the minimum amount listed on your bill each month so you don't have to pay it off in full. But any left over amount gains interest, so unless you pick a business credit card that has a 0% interest period, you'll likely end up paying more overall.

Is a business charge card or a business credit card right for me?

Which option is right for your business depends on how the card will be used, your monthly cash flow and what benefits you hope to gain by using credit.

Credit cards are generally easier to find and compare, and allow you to pay off the balance gradually, but they do accumulate interest. Business charge cards can be useful if you want to make large purchases without being hindered by a spending limit, provided you can afford to pay back the full balance each month.

Used responsibly, either option could help you build up your credit score.

What is a company credit card?

A business credit card, also known as a company credit card, is just like a normal credit card, but it’s in the name of your business rather than an individual. And it’s there to finance your business, rather than personal expenses.

Any size business can have one, even a sole trader or self-employed freelancer. If you have a larger company, you can also assign cards to your employees to use for their expenses.

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How do they work?

In most respects, they work in the same way as personal credit cards, allowing you to borrow money up to a specific limit set by the lender.

You’re required to make minimum monthly repayments. However, if you pay back the total amount you’ve borrowed each month, you pay no interest. Pay back just part of the balance, and you’ll be charged interest on the remaining amount you owe.

Business credit cards usually come with higher spending limits than personal credit cards. And lenders often offer more lucrative rewards and benefits like travel perks.

Most company credit card lenders can provide multiple cards, so you can issue them to your employees to use for their expenses.

There’s usually an annual fee to pay on a business credit card, though this may be waived for the first year of use.

What types of business credit cards are available?

You should do a little research before deciding on which sort of credit card would suit your business. Cards available may include:

Low rate and 0% interest business cards

These cards come with a low or 0% introductory interest rate on purchases. They can be useful if you’re looking to make big purchases for your business, giving you more time to pay them off.

After the introductory period ends, you’ll be moved to a higher interest rate. Think about clearing the debt before this happens to avoid paying out more than you need to.

Rewards and cashback business cards

These cards earn you rewards or a percentage cashback on your credit card spending. They usually charge a higher rate of interest, so they’re best suited to businesses that spend a lot on their credit card but pay back the balance in full every month.

Travel business credit cards

These cards don’t charge foreign transaction fees, so if you do a lot of business travel abroad, they can be a cost-effective option. You need to watch out for other types of charges though, for instance if you use an ATM.

What are the benefits of business credit cards?

If you’re thinking about applying for a business credit card, consider:

  • They keep personal and business spending separate, making your accounts much easier to manage
  • Help with cash flow. If you’re waiting for invoices to be paid, a business credit card can help pay for necessary company expenses until the money comes in
  • Makes processing and keeping track of your employees’ expenses easy
  • Helps build a credit profile. This can be especially important if you’re a new business. If you manage your credit card well, you should find it easier to get further credit down the line, to build the business
  • Getting rewards. Many business credit cards come with valuable perks - from cashback, airmiles and other travel-related benefits to discounts at selected retailers or free insurance
  • Many come with interest-free credit periods
  • Some have no charges for purchases abroad
  • They’re accepted worldwide

What are the disadvantages?

It’s always important to look at the drawbacks of a credit card before applying:

  • As is the case with any credit card, if you don’t keep up with repayments, you risk going into debt and damaging your credit score
  • Most come with an annual fee, though many providers waive the fee for the first (and sometimes second) year of use, if you spend more than a certain amount on the card
  • Most business cards don’t come with as much purchase protection as personal credit cards because they’re not covered by Section 75 of the Consumer Credit Act. This is where you can make a claim to the card issuer if there’s a problem with goods or services you’ve purchased
  • Allowing employees to use business cards means you risk them overspending, though you can place limits on each card to mitigate this. There’s also the risk of card fraud if employees are careless with their card details
  • They can be an expensive form of borrowing if not used responsibly, typically charging higher interest rates than a small business loan
  • Cash withdrawals - you can be charged for withdrawing money from a cash machine

How do I get a business credit card?

You can apply for a card from your preferred lender either online, at its local branch, or on the phone. Bear in mind that some card providers require you to be an existing business account holder with them, but it’s not always the case.

You’ll need to provide information on your business, including its turnover (or its estimated turnover if you’re a new business), and the lender will run a credit check on the business, and sometimes a personal credit check too.

Depending on the results of the check, you’ll either be accepted or approved. If you have a strong credit profile, you’ll usually be offered a better interest rate and credit limit.

Can I use my personal credit card for business?

Yes, but many small business owners prefer to keep their personal and business finances separate, so they can keep track of company spending more easily.

Business cards also often offer higher spending limits which might suit your business better, plus more lucrative rewards.

Also, of course, using a personal credit card to finance your business won’t help build your business credit profile. So, you’re less likely to be accepted for other forms of credit in the future, like loans.

Be aware that if you’re the primary account holder of a business credit card, any missed payments can negatively affect your personal credit score.

What are the costs?

As well as paying interest on unpaid balances on your company credit card, you could be charged:

  • A monthly or annual fee
  • Late and missed payment charges
  • For cash withdrawals
  • Foreign transaction fees
  • Penalties for going over your credit limit

How do I find the best deal?

You should compare a range of credit cards, factoring in things like:

  1. The APR (annual percentage rate) - the rate of interest charged for borrowing

  2. If the card has an interest-free period and if so, for how long?

  3. The rewards and discounts it offers

  4. Does the card charge an annual fee and is it applicable to each cardholder?

  5. Other charges, including foreign transaction fees and cash withdrawal fees, for example

Frequently asked questions

Businesses of any size can get a credit card, but start-ups may find it more difficult to be accepted for a card as they won’t have a credit history.

Your company will be credit checked so that the provider can decide whether to offer you a card and what your credit limit will be.

It might also ask to see bank statements and details of company assets to make sure you can afford the repayments.

Some lenders will look at your personal credit score to help them decide if they can offer you a business credit card. If your score is good, they may be more likely to approve your application.

As a new business, you might be given a low credit limit or a high interest rate while you build up a credit record. But if you manage your credit card well and make payments on time, you’ll be able to apply for more competitive business credit card deals in the future.

If you’re a new business, they can help you build up your credit rating, as long as payments are made on time and you stay within the credit limit.

As the main account holder on a business credit card, you’re usually liable for all debt on the card. That means that late or missed payments can have a negative impact on your credit record and you could struggle to get personal credit as a result.

It’s possible to get approved for a business credit card even if you have a poor credit history. You’ll likely be charged a high interest rate and have a smaller credit limit, though, so you should be confident you can pay off your card’s balance in full every month. Using the card wisely and responsibly can help rebuild your credit score.

Yes, a business credit card can be used by anyone who runs a business, whether it’s a sole trader or a limited company. As long as you meet the eligibility criteria, you can take one out.

If you run a business and authorise employee expenses, then you can keep track of their spending more easily.

You’ll need to meet the lender’s criteria, which could include:

  • Your business has a bank or building society current account
  • You’re aged 18 or over
  • You have a permanent UK home address
  • You or the business have no County Court Judgements for non-payment of debt

Business credit cards are for companies that are small to mid-sized, including sole traders. Corporate credit cards are designed for large companies with much bigger annual revenues and multiple employees.

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