Business Credit Cards

Business credit cards offer a way for companies to obtain flexible short-term funding up to set limits and to borrow interest-free for periods of up to 56 days provided that the card balance is cleared in full each month. Cards can be issued with spending limits and restrictions on where they can be used, to prevent abuses.

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The Informed Funding two-minute guide: Business Credit Cards

• How do business credit cards work?
  Business credit cards are very similar to any other credit card – they offer the ability to buy on credit and benefit from interest-free finance for several weeks (frequently 45-50 days or more) provided the balance is cleared in full each month. The card provider will require a minimum monthly payment equivalent to a few percent of the outstanding balance but beyond that you are free to repay as much of the balance as you like although if you don’t repay it all you will start to incur interest on the unpaid portion. Businesses can arrange for several cards to be issued so that a number of employees can use a card linked to the business’s account, each with an individual credit limit set for that person.
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  • What are the advantages of using a business credit card?
    These cards offer flexible access to short-term credit up to the limit set for the account and can help companies make essential purchases without putting immediate pressure on their cash flow. They provide detailed breakdowns of spending in real time so that you can monitor how employees are using the cards in order to pick up unusual patterns. Some providers will automatically alert you when your company is approaching its credit limit. As well as paying for purchases, you can also use a business credit card to make cash withdrawals although these will incur a fee on each withdrawal. Over time, businesses that build up a record of prompt repayment and problem-free use can improve their credit history and help to secure higher borrowing limits.
  • What sorts of business can apply?
    Most card issuers will accept applications for a variety of types of business: partnerships, limited companies, sole traders etc. Cards are mainly marketed to smaller businesses with annual turnover of £2m or less, although of course much larger companies also arrange for groups of employees to be issued with corporate credit cards.
  • How much can I borrow?
    This will depend on the individual circumstances of your business including its size and its credit history.
  • What interest rates, fees and incentives can I expect?
    The interest rate you will pay again depends on your business’s circumstances, particularly its credit history. Card providers typically quote annual percentage rates for purchases and balance transfers in the mid- to high teens. If you make cash withdrawals using a business credit card there is normally a fee of around 3% per transaction, and the interest rate that applies to this kind of borrowing is often higher than the rate charged on purchases. There is normally an annual fee for each card issued on the account (£32 is typical) although this will sometimes be waived for an introductory period. Some cards enable you to build up reward points or offer cashback on purchases. Missed and late payments will attract penalty fees.
  • Who provides them?
    The main issuers of business credit cards are banks, some of which will insist that your business holds a current account with them before they will issue you with a credit card. However, not all issuers will insist that you are an existing customer.
  • Do I have to provide any sort of security?
    Credit card lending is unsecured. However, the card issuer may require you to set up a direct debit mandate so that it can collect the monthly minimum payment from your business account. You should also remember that if you fail to make minimum payments or are late doing so, this will show up on your business’s credit history and may make it harder to borrow in future.
  • Need to know:
    • When you apply for a business credit card the provider will carry out a credit check on your business that will show up on its credit history.
    • It’s important to have a clear, written policy for staff so that they are made aware of what are acceptable uses of a business credit card.
    • Business credit cards provide a very flexible short-term source of credit but will become expensive if the balance is allowed to remain unpaid for any significant length of time.

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