What Are Business Credit Cards?

An in-depth look at business credit and charge cards

Business Credit Cards
Last updated:

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 standing
  • 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 back.

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 each month.

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:

Convenient Credit

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.

Business Reporting

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 company’s activity.

Money Management

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:

Usage Fees

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.

Interest Rates

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 of each.

Budgeting

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.