Credit cards for small businesses
Key takeaways:
Using a small business credit card can help to separate personal finances from business spending
The type of small business credit card your business is eligible for will depend on its credit history
You can earn rewards, cashback, air miles, and loyalty points when using small business credit cards
What is a small business credit card?
A business credit card works in the same way as a personal credit card, but any spending you use the card for should be for business expenses.
As a small business owner, you may be a sole trader or a limited company, and using a credit card allows you to borrow larger amounts which may be necessary when you’re just starting out. You can use the card to separate your business expenses from your personal finances, which can make managing your money and paying tax a lot simpler.
You may also be able to earn rewards or gift cards and benefit from discounts to lower the cost of your business spending. There is often cashback paid on your business spending too.
Some business credit cards include extra perks such as invoicing tools, spending controls, and accounting software.
However, as you are borrowing money on the business credit card, you also need to be aware of the interest rate you may be charged, and any potential penalties if you’re not able to clear the card balance each month. There may also be an annual fee to pay to use the card.
Who can get a business credit card?
Business credit cards are available to companies of all sizes, including sole traders and limited companies. The type of credit card you may be eligible for will depend on a few different things including:
The size of your business
Your annual business income
How long your business has been set up for
Your business credit history and your personal credit history
To apply for a small business credit card your company will usually need to earn a certain amount of money every year, be registered in the UK, and you will need to be at least 18 years old. You may also need to open a business current account with the same provider.
How to apply for a small business credit card
There are lots of small business credit cards to choose from, so it’s important to compare cards and to shop around before you make a decision. When you apply for a new card you will usually need to provide the following information:
Your personal details and address
The registered address of your business
Your businesses Company Registration Number (if it's a limited company)
Your business's financial accounts, including annual income
You can apply for a small business credit card online or in a bank branch and if you are approved it can usually be set up that day.
Eligibility criteria for small businesses and limited companies
You may be eligible for a small business credit card if you are a sole trader or a limited company.
Most credit cards for start-ups and small businesses will have a set of criteria you will need to meet to be approved.
This includes the following:
A minimum annual amount your business earns per year
A good credit score (a credit check will be carried out on your business and in some cases you personally as well)
Lenders will look at your creditworthiness when making a decision over whether to approve you or not. If your small business hasn’t been set up for long, and you’re in your first year of operating for example, you may have a limited business credit history.
This means if you're approved for a business credit card you may face a higher interest rate on your borrowing, or you may be given a smaller credit allowance when compared to a business with a higher credit score.
A credit card provider may look at your personal credit score if this is the case, and could use this when deciding whether to approve your business credit card. Some lenders also require small business owners to sign a personal guarantee before they allow them to take out a small business credit card. This is an agreement to say you are personally responsible for any business debt built up on your company credit card.
How to build credit as a small business or limited company
You can boost your business credit score by always making payments and paying invoices on time.
If you already have a business credit card, sticking to your credit limit and repaying the card each month will also help to improve your credit history. Using it for your business expenses, and then paying the card off will show you are borrowing responsibly and this can increase your credit score too.
Regularly checking your business details, and making sure there are no errors such as incorrect address or names, will also help. It’s not something that can repair overnight but by consistently avoiding missed payments, filing all of your business documents on time, and making sure your accounts are not in debt will help.
The pros and cons of small business credit cards
Credit cards for limited companies or sole traders can be helpful but there are drawbacks to consider too.
The pros
You can access larger amounts of money by borrowing on your business credit card, which can help you manage cash flow
You can earn rewards and cashback on your spending
There may be discounts available when buying for your business or other perks included
Meeting the conditions of your credit card can boost your company’s credit score, which can increase your chances of accessing higher credit limits in the future
The cons
You will need to pay interest if you don’t clear the full balance on your card
There will be penalties such as fines if you have a late repayment
Spending limits may be lower and interest rates charged could be higher if your company doesn’t have a good credit score
Your company credit score will be negatively impacted if you don’t make payments on time
Things to consider before applying
Before you apply for a small business credit card, take a look at the following:
Annual fee: There may be an annual fee to pay to the credit card provider in return for having a small business credit card.
Interest rate: There may be an initial interest-free period but when this ends you will pay interest on any balances on the card. If you won’t clear the crest card each month, you will need to factor in the extra money you will need to pay out in interest.
Credit scores: The type of card you can get, the interest rate, and the credit limit will depend on your business and possibly your personal credit score.
Extra cards: When you take out a small business credit card you may want to add an additional cardholder, which may come with a cost.
Access: Think about how you want to manage your business credit card, you can usually choose between online, app-based or branch-based accounts.
Debt repayments: Think about your business needs and how much money you expect to make before taking out a credit card. If you won’t be able to make your repayments, you could face a higher interest rate, fees, and a negative hit to your credit score.
Benefits and rewards: You may be able to earn reward points on your credit card spending. These can include cashback or Avios points, for example.
Extra features: Some business credit cards have extra perks included such as access to accounting software programmes, travel insurance, expense tracking tools, or budgeting apps. There may also be cheaper rates for foreign exchange and foreign transaction fees too.
Alternatives to business credit cards
Credit cards for start ups or small businesses can be incredibly useful but they are not the only source of funding available. A few other alternatives include business loans, which are available from most banks and loan providers. Invoice finance is another possibility, it’s a way of borrowing money against any unpaid invoices you have.
FAQs
Can a limited company get a credit card?
Yes a limited company or a sole trader can both apply for a small business credit card. The type of card you may be able to get depends on things like your credit record and your company’s income.
Can I use a personal credit card for business?
Yes, you can use a personal credit card for business expenses but it is usually a lot easier to have a separate business credit card. This also allows you to add additional cardholders if you employ other people and want them to be able to pay for things.
How many additional cardholders can I have?
The number of cardholders will depend on the lender and the type of business you have. Some lenders offer unlimited cards and others have a limit, often up to four in total.
Do I have to pay off the full balance of the card each month?
Unless you are in an interest-free period, you will have to pay interest if you don’t pay off the full balance of the credit card each month.
Can I use a business credit card for cash withdrawals?
You can use a business credit card for cash withdrawals but it is not recommended. It's for borrowing money, and repaying it (with interest). If you use it for cash withdrawals you will usually be charged a higher rate of interest and this may affect your credit score in the short-term.
What purchase protection is available with a business credit card?
Business credit cards do not have the same purchase protection as personal credit cards, as they don’t benefit from the Section 75 Consumer Credit Act. However, most cards do offer protection against fraud.
Author
Rebecca Goodman
Personal Finance & Insurance Expert
Rebecca is an award-winning financial journalist with over a decade of experience writing for print and online media. Her mission is to take the jargon out of personal finance and to help everyone...
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Alan Cairns
Senior Content Editor
Alan helps MoneySuperMarket break down complicated financial topics into plain English, to help you find the right deals. When he’s not writing or editing you might find him cycling the South Downs.
