Credit cards
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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.
There are four main differences between business charge cards and business credit cards: spending limits, monthly payments, interest and availability.
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 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.
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.
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.
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.
You should do a little research before deciding on which sort of credit card would suit your business. Cards available may include:
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.
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.
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.
If you’re thinking about applying for a business credit card, consider:
It’s always important to look at the drawbacks of a credit card before applying:
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.
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.
As well as paying interest on unpaid balances on your company credit card, you could be charged:
You should compare a range of credit cards, factoring in things like:
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