An in-depth look at business credit and charge cards
Business finance works differently from personal finance,
but that doesn’t mean that there isn’t some overlap between the two. When
you’re first starting out as a small business or sole trader, it can be tricky
to navigate the various options you have available. One of the most popular
forms of business credit is credit cards. They offer flexibility, a number of
features, and are a great way of managing your company’s cash flow. We take a
look at everything you need to know about how business credit cards work.
What are Business Credit Cards?
Essentially, business credit cards work in a very similar
way to regular ones. However, instead of being registered to you personally,
they are tied to the business you own/work for. When you make a purchase or
transaction using the card, it’s made in the name of the company. Like standard
credit cards, you will be given a credit limit, allowing you to spend up to
that amount. You will have an interest rate that’s charged on your balance at
some point, although the exact terms of this vary from lender to lender.
With a business credit card, you can make payments in shops
and online, withdraw cash from an ATM, and have the security of the card
provider should something go wrong. Businesses who want to borrow money over a
period longer than a month often choose these cards for their credit. They also
provide several specific perks aimed at businesses. These can include
preferential rates, free insurance, and cashback.
Who are Business Credit Cards For?
Business credit and charge cards have become increasingly
popular in recent years, especially among smaller companies. The requirements
for applying for one are reasonably relaxed. You need to:
Be over 18 years old
Have a business that’s in good financial
Not have any recent bankruptcies or CCJs
Some banks may have other requirements that you have to
meet. For example, they could ask that you:
Already have a business bank account with them
Don’t have a history of missed or late payments
For many companies, this is a fairly easy set of criteria to
meet. So, no matter the size of the company you own, you could be eligible.
Whether or not you need a business credit card depends on
your business, its circumstance, and the aspirations you have for it. You may
feel that you need the credit in order to expand or manage cash flow. Just
remember that the amount banks are willing to lend you will depend on various factors.
Also, keep in mind that you should never borrow more than you can afford to pay
What’s the Difference Between a Business Credit Card and a Charge Card?
Another popular form of business credit is the charge card.
These work in a similar way to credit cards, with one significant difference.
With a credit card, you have the choice of paying your balance off in part or
in full at the end of the month. Anything you don’t pay off will be charged
interest at the pre-determined rate your bank or provider is offering. With a
business charge card, you have to pay off your entire balance at the end of
Essentially, credit cards offer more flexibility in terms of
long-term borrowing and repayment, while charge cards are more rigid. This
doesn’t mean they don’t have their uses though. Business charge cards allow you
to securely make purchases with a short-term deferral of repayment. They give
security and some flexibility, without the risk of having to pay interest on
the balance. If you don’t want to borrow for an extended period but do want to
make business purchases, a charge card could be a good option for you.
What are the Benefits of Using a Business Credit Card?
There are several reasons why companies choose credit cards
as their preferred form of business borrowing. Below, we’ve highlighted the
advantages that come with using them:
Perhaps the biggest reason companies choose to use these
cards is that they represent a fairly quick and convenient way of borrowing
money. Whether you’re just starting out with your business or trying to expand
it, there are often costs associated. You may not immediately have the cash
on-hand to make the purchases or pay the bills you need to get your company on
its feet or to the next level. It’s also incredibly easy to apply for a card
and start using it. With relatively little information, you can go into a bank
and open an account for your business.
Cash Flow Solution
Another huge perk of credit cards is that they allow you to
manage your money better. Usually, you’ll be billed at the end of a monthly
billing cycle. From the time you get your bill, you’ll then typically have
between 7 and 26 days to pay off the amount before accruing interest. This
means you could end up with a period of 56 days of interest-free credit on
purchases by using a credit card. So, if you need to make a purchase but don’t
quite have the cash yet, a business credit card could give you the time you
need while still allowing you to complete the transaction.
Many new company owners or sole traders will use their own
personal bank account or cards to make their business transactions. Doing so
can make it much harder for you to keep track of what is a personal expense and
what is a work one. When it comes to doing your taxes, this can become
problematic and time-consuming. A business credit card means there is a
separation of your finances, making it much easier to track and report on your
Most banks and card providers give you access to reporting
tools that help you keep on top of your finances. Whether it’s through
exporting statements, checking your mobile app, or using their website,
business credit and charge cards allow you to manage your fiscal activity. They
allow you to control how much you borrow and spend, making it simpler to
monitor what’s going on.
There are a host of other positives that come from using
this type of finance for your business. Many banks offer promotional rates,
cash back incentives, insurance offers, and security measures.
What are the Downsides of Using a Business Credit Card?
As with most financial products, there are both positives
and negatives of using business credit and charge cards. To give a balanced
view, we’ve highlighted some of the downsides of them:
Many lenders attach fees for using their business credit
cards. Often, this is an annual amount that you have to pay in order to use the
card. Sometimes, you’ll find that fees are waived for your first year of usage,
but will start applying after that. It’s worth considering whether these fees justify
the features you get and the benefits to your company.
Depending on your circumstances, the interest you’ll have to
pay on your outstanding balance can be quite high. If you’re not able to pay
back the amount you borrowed, these fees can soon start mounting up. Other
forms of credit may have lower rates, such as overdrafts and business loans.
You should look at your available options and weigh up the costs and benefits
The flexibility of a business credit or charge card comes
with one downside – it can make it harder for you to keep on top of how much
money your business actually has. Knowing that you have a certain amount of
credit can leave you spending more than you can afford to pay back. Once
interest starts accruing, things can become a little costly.