What is a business credit card?
A business or company credit card could help your business manage different expenses, both for yourself and for your employees. It’s like a standard credit card, but it’s given in the name of a business instead of an individual person - although the card will also have the name of someone from the company printed on it.
You’re still able to make purchases as you would with a normal credit card, and some business credit cards also offer extra benefits like cashback and insurance deals.
Applying for a business credit card is a slightly different process than applying for a personal card. And because they’re designed for companies and not consumers, they aren’t covered by the Consumer Credit Act.
How do business credit cards work?
Business credit cards work a lot like a personal credit card:
- Credit limit: if you’re successful in applying for a business credit card, your provider will give you a credit limit. This is effectively the maximum amount your business is allowed to spend on the card.
- Minimum monthly repayments: when you spend using the card, you build up a balance, and you usually have to pay a certain minimum amount back towards this every month.
- Low interest rates: if you pay back enough each month, you could avoid paying interest on what you borrow. But if you don’t, you could start building up credit card debt.
The interest you pay on your monthly and annual payments is sometimes based on the type of business transactions you make with your card. It’s worth reading the provider’s policy documents before applying for a card so you’re aware of how much interest will be charged and when.
The percentage of credit cards gaining interest on their debt, according to MoneySuperMarket data correct as of July 2018.
Who are business credit cards for?
Some credit card providers might have certain requirements that you’ll have to meet - but in general, you could be eligible for a business credit card if you:
- Are a sole trader
- Own or are starting up a business
- Work and make purchases for a larger company
Some credit card companies will still offer different deals depending on the size and financial strength of your business, and some banks may only offer credit cards if you open an account with them.
How much do business credit cards cost?
The main costs of a business credit card involve:
- Annual fees: not all business credit cards apply annual fees, but it’s more common than with personal credit cards. Some business credit cards might offer no fees for the first year, before introducing them after this period.
- Interest rates: one of the main costs of any credit card is the interest you pay on money you spend and don’t pay back within a given time. This is normally given as an APR, or annual percentage rate.
Business credit cards can also include other charges for things like:
- Late payments: if you’re late paying your credit card bill, you’ll be charged extra on top of the interest payments.
- Exceeding your credit limit: you’ll also be charged for going over your credit limit.
- Inactivity fees: some credit cards may charge dormancy or inactivity fees - often a certain amount for every month/year you don’t use the card.
- Cash withdrawals: if you withdraw cash from an ATM using your credit card, your provider may also charge an extra fee for this and immediately charge interest on the amount withdrawn.
- Usage abroad: using your business credit card abroad on a business trip, for example, can sometimes bring extra charges.
It’s worth remembering that the APR is adjusted to include all fees and charges associated with the credit card, not just the interest rate.
What types of business credit cards are there?
The different types of business credit cards you can apply for normally offer different benefits – for example, you can choose between cards that offer:
- 0% purchases: this is when your company doesn’t pay interest on money you spend, normally up to a given amount or for a certain period of time.
- Cashback: with cashback benefits, your business might get back a certain portion of the money you spend each year.
- Shopping and discounts: some business credit cards also offer discounts or vouchers for shopping in certain stores, sometimes in exchange for you building up reward points.
- Air miles: air mile benefits can be useful if you or your employees often travel for business as they can help reduce the cost of airline tickets.
- Insurance deals: you might also be offered insurance included as part of your credit card deal, such as travel insurance, which could be useful for business trips.
Why choose a business credit card?
Business credit cards can offer a number of benefits for you and your company like:
- Separate finances: with a business credit card, you can separate your personal spending from that of your company.
- No more expense claims: you can also eliminate expense forms by allowing your employees to make purchases directly from the company account.
- Controlled cash flow: you might find it easier to monitor and manage your business’s cash flow with regular credit card statements.
- Business credit: just as with personal credit cards, using a business credit card responsibly is a good way to boost the credit profile of your company - so you’ll hopefully find it easier to secure business finance in the future.
- Protective measures: you can also find business credit cards with additional security, like fraud protection and insurance, to help protect your business if an employee does misuse the card.
Things to keep in mind when applying for a business credit card
When you apply for a business credit card, there are a number of things you should be aware of, as these can be quite different to standard consumer credit cards.
- No consumer credit protection: personal credit cards offer purchase protection in the form of Section 75 of the Consumer Credit Act. This means that if you make a purchase on credit that’s worth between £100 and £30,000, and something goes wrong during the transaction – for example, if items aren’t delivered or they are faulty and you can’t get them refunded – you’ll be compensated by the card provider. This doesn’t apply to business credit cards.
- Stringent checks: if your business is relatively new, and therefore doesn’t have a credit rating yet, you might not be able to take out a business credit account. If they do accept your application, and you have no credit rating or a poor credit rating, you may be given higher interest rates or a lower credit limit.
- Annual fees: some providers also include annual fees for business credit cards that don’t generally apply for individual consumers.
- Accepted payments: some suppliers may not accept credit card payments, preferring invoices and bank transfers instead.
- Low credit limit: sometimes, the credit limit you’re given on a business credit card is more restrictive than other forms of business finance, like business loans. As a result, business credit cards are unlikely to be the best option for bigger projects or investments – for other funding options for your business, read our guide on business finance.
The most commonly used sources of finance for small and medium-sized enterprises in 2017, according to Ipsos MORI market research’s study of 2,070 SMEs.
Tips for choosing a business credit card
While applying for a business credit card is similar to any other, there are a few specific things you should keep in mind to make sure you get the right deal:
- Interest rate (APR): keep an eye on the APR given and remember that this only has to be legally offered to 51% of applicants. Some business credit cards might even charge higher interest rates than other credit cards.
- Relevant rewards: while credit card rewards can be useful, it’s important to make sure the ones you have meet your business needs. For example, if your employees are regularly travelling offsite, then a business credit card package that comes with travel insurance perks could be a good idea. But if your business spending is high and you’re gathering a lot of interest, you might find this counteracts any benefits you’re receiving.
- Cards for employees: it’s worth considering if your employees might make use of a company credit card - you might be able to get extra cards for them on the same account.
- Foreign transaction fees: if you or your employees travel frequently, and you might need to pay for things while abroad, it’s worth checking whether your provider includes extra fees for making transactions abroad.
- Paying off the debt: as with any credit card, it’s important to keep track of your spending so you’re able to pay off anything you borrow - without letting interest build up.
How to compare business credit cards
Finding a good deal for business credit cards can be made much easier by comparing your available options. With MoneySuperMarket’s credit card eligibility checker tool, all you need to do is provide a few details about your business, such as its name, age, contact details, and information about your finances and trade to then browse through deals and pick the best credit card for your business.
You’ll then be able to compare business credit cards based on factors like interest rates, fees and charges, and any extra rewards that might be included – this way, you’ll be able to see exactly what each card offers, so you can find the one that’s right for you.
You can apply for the cards via MoneySuperMarket by clicking through to the provider’s site. Once you’ve applied, your provider will run a credit check. They’ll generally look at your business’s credit rating rather than your personal one, though some might have a look at both to determine your credit risk factor. If this all looks OK to the provider and your application is approved, you’ll be told what interest rate and credit limit you’ll be given. Remember, this won’t always be the same as the figure advertised, because it also takes into account factors relating to the business itself, including its revenue and credit report.