Using a business credit card responsibly can help you build a solid business credit history, efficiently manage business expenses and earn rewards for spending money.
Similar to a personal credit card, a business credit card will have a set credit limit and a monthly APR that is applied to any borrowing that isn’t paid back by the payment due date.
A business card can be used to pay for all business related expenses such as travel costs, office supplies, business lunches or mobile phone bills; it cannot be used for personal expenses.
A card can also help with your business’s cash flow - say, when a customer is late paying an invoice.
A business credit card works by allowing you to use credit (this can be more credit than you would access on a personal credit card) to solely make business related purchases.
You can opt to pay anything from the minimum payment up to the whole balance - there is a longer grace period for repayments on business cards, typically from 45 to 59 days.
Many cards offer rewards on purchases which are often points that can be converted and used for travel or accommodation costs, or cashback credited to your account. (Note: Some rewards cards charge annual fees.)
If you have employees, they can have a card issued in their individual name(s) so you can easily keep track of their business expenses.
A business credit card can be worth having if you:
The disadvantages to using or applying for a business credit card are:
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Yes, as part of their vetting process, a lender will conduct a credit check when you apply for a business credit card.
If you have little or no business credit history, a card provider will check your personal credit score and history for adverse credit (and, if applicable, other director(s)’ or partner(s)’ personal credit scores and histories too).
You might also want to read: What does adverse credit mean?
A good credit score alone will not guarantee a successful business credit card application as this is only one part of the overall eligibility criteria. However, your credit rating is pretty important.
What credit score you need for a business credit card will depend on whether your application is based on a personal credit score or a business credit score:
As your credit score is so important, before applying for a card you should check your personal credit score by getting a free, multi-agency report from Checkmyfile.
You can also check your business credit report online with Experian or to check it with Equifax, you need to download and complete an application form and send your request by email or post.
Whilst it will be easier to apply for a business credit card if you have a limited business registered at Companies House and a business bank account, you can still successfully apply if you’re a sole trader and meet all the eligibility criteria.
Yes, a business credit card can affect your personal credit rating, predominantly if you’re a sole trader, when:
* According to forbes.com, financial experts recommend a small business owner should try to avoid using more than 30% of their credit card’s available credit (known as ‘credit card utilisation’). This means that if you have a business credit card with a limit of £2,000, then you should avoid spending more than £600 on that card.
How much credit a small business can or should have will depend on what credit limit is offered by a card provider who will mainly look at a business’s turnover, debts, credit utilisation and how long it’s been trading.
More successful businesses with a high turnover, low credit utilisation and business longevity will of course be offered a much higher credit limit than a small startup that’s struggling to get off the ground.
For example, a small business with a turnover of £10k will typically be offered a credit limit of £1,200, whereas a small business with a turnover in excess of £50k could be offered a credit limit of tens of thousands of pounds. However, bear in mind that for larger borrowing, a longer term business loan is usually a cheaper and better option.
However much credit you have, make sure you don’t use all of it as this can affect your credit rating.
The best way to manage your personal and business credit sensibly is to keep your personal finances completely separate from your business finances by:
Read more: How long does it take to build credit?
The best credit card for your business will depend on, amongst other things, what you want from a card and your limitations on choice.
We recommend comparing credit cards online and paying particular attention to business credit card interest rates and annual fees.
Martin Lewis’s top picks for small business ‘rewards’ credit cards are Barclaycard Business for cashback or if cashback doesn’t float your boat then the American Express Gold Business Card.