How a business credit card could work for you
- Red Cash advances may have a higher interest rate than purchases and have no interest-free grace period
- Amber Certain business credit card providers may waive fees if you take a card as part of a package of services
- Green Most credit cards are a form of unsecured credit. A good credit history, no security needed
A business credit card gives you access to access to extra funds at a moment’s notice but cash advances could cost you more. Read on to find out more.
Why would you use a business credit card?
A business credit card is, essentially, an on demand, pre-approved loan, which allows you to borrow up to the limit on the card at a moment’s notice.
By carefully selecting credit card providers, UK businesses can give themselves ready access to funds to pay suppliers, pay for business services, utilities and fuel, or to book business travel.
But business credit card providers may offer additional benefits as well. They allow a business to track purchases made for the business, keeping them separate from personal purchases. A credit card statement may be sufficient for accounting and tax purposes, relieving a business of the burden of keeping and filing receipts.
A corporate credit card can be provided to staff to make purchases, such as fuel or raw materials, eliminating the need to provide them with petty cash or cheques.
Credit cards also allow a business to make purchases more easily. Merchants who may not accept a cheque as payment will often accept a credit card instead. Credit cards can also be used easily for online purchases and payment of bills, including utilities and government fees.
Business credit cards may also allow you to collect air miles, reward points or cashback on purchases. Read the details of card offers closely and consider how you will use the card to determine which benefit may be right for your business. In some cases, a no fee or low fee card without benefits may be best.
How do business credit cards work?
Business credit cards are functionally similar to the personal credit cards you may already have. The main business credit card companies are Visa, Mastercard and American Express. There are other credit card companies as well, such as JCB in Japan and Discover in the USA. It is important to get a card that will be accepted where you intend to use it.
Credit card companies maintain payment networks and ensure the payment systems work. They do not issue cards. Cards are issued by licenced credit card providers, such as banks, credit unions or specialist issuers. These companies issue cards branded with the logo of one of the credit card companies and are authorised to work on their network.
The main difference, of course, is that the card is issued to the business. A card account may have multiple cards connected to it. For example, the manging director, director of sales and director of marketing may all have a business credit card linked to the same card account. Purchases made on any of the cards will apply against the joint limit they all share.
When you make a purchase, the seller’s credit card POS machine communicates with your business credit card provider’s system with details about the purchase. If your card is in good standing and has enough available credit to cover the purchase, it will be approved. If not, it will be declined.
Your credit card supplier will keep a record of the transaction and issue you a monthly bill for the transactions, called a statement. The details can get a bit more involved, but that’s the short version.
Once your business receives the statement, you can pay the statement in full on or before the due date and you will not be charged interest on your purchases. If you do not pay in full by the due date and carry a balance forward, you will be charged interest on the entire balance. If you purchased £3,000 of items but only pay £2,500, carrying a balance of £500 forward, you will be charged interest on the full £3,000.
If you use the credit card to take a cash advance or purchase certain ‘near-cash’ items, such as traveller’s cheques, you will usually be charged a cash advance fee and interest from the time of purchase until the balance is fully repaid. Cash advances may have a higher interest rate than purchases and have no interest-free grace period. They also do not earn air miles, reward points or cashback.
What are the costs of business credit cards?
Business credit cards come with a number of costs. There is the interest rate, of course. Then there is the APR (annual percentage rate). This includes the interest rate plus any other fees payable and is the effective interest rate you will pay. A lower number is better.
Some business credit cards have annual fees. Certain business credit card providers may waive those fees if you take a card as part of a package of services. High Street credit cards may be offered by banks that may waive the fee on a card if you also have a business current account with them, for example.
In addition to interest and annual fees, other common fees are cash advance fees, foreign exchange fees (which apply to transactions made in a different currency than the one the card is denominated in), late payment fees and over limit fees. Check the details carefully for any card you are considering applying for.
How long does it take to secure business credit cards?
There are a number of credit card suppliers offering business credit cards. These include RBS, HSBC, NatWest, Barclaycard, Capital On Tap and American Express.
A credit card application may be approved in minutes or it may take several days. A good credit history is usually necessary for approval; however, some providers do offer secured cards, which allow new businesses and those with mixed credit histories to obtain cards.
What type of security do I need for a business credit card?
Most credit cards are a form of unsecured credit. If you have a good credit history, you will not need to provide security. However, some credit card providers do offer secured credit cards. These require you to provide an amount equal to your desired credit limit. The security is held by the issuer and is forfeited should you not pay your bill. If you pay your bill regularly and on time, you can improve your credit history and qualify for an unsecured card.
Find your business
- Guide to trade finance
- Why use trade finance
- Equity funding
- Export finance
- Get paid on time
- Merchant cash advance
- Pension-led funding
- Bridging finance
- Mezzanine financing
- Reward credit cards
- What is invoice finance
- Business investment
- Business expenses
- Working capital finance
- Supply chain finance