Are you looking into info about business credit cards for your small business? If so, search no further – we’ve got here the essential details on how they work, the costs involved, and the level of protection they offer. We also cover off alternative forms of financing that also exist for any expanding business.

Quick-fire facts

  • Business credit cards allow you to access funds via a bank card, up to your credit limit.
  • Interest will be charged monthly on the outstanding balance of the card.
  • Annual fees and other fixed costs will be charged for access to the card.

How do business credit cards work?

A simple and straightforward way to access cash and improve cash flow, business credit cards allow you to spend up to a set credit limit. That limit is the amount you’re approved for, and this is dependent upon a variety of factors. It’s usually pretty hard to get approved for a large amount of credit, so they’re better used for bridging cash flow gaps or tracking employee spending rather than for major purchases or investment. In addition, it can sometimes be very difficult to get approved for a business credit card if you’re a startup, a sole trader or have had previous credit problems.

How much do business credit cards cost?

When you make a purchase using a credit card for business, the value of the purchase will be added to your account balance. At the end of your billing cycle (normally a month) your provider will charge interest on any balance on the card that’s carried forward from one month to the next. The amount you pay each month is determined by how much you spend, meaning you can choose to pay more or less of the balance outstanding. The longer you hold a balance on your account, the more interest you’ll pay.

Looking for a larger line of credit than a business credit card can offer? Check out our guides to alternative financing options, or find out how iwoca can help you secure a business loan in minutes.

The smallest amount you can repay is the minimum payment. This is typically 1% of the balance or £5 – whichever is higher – plus the interest payment. But interest rates on business credit cards can vary dramatically, so it’s good to check the terms of an agreement before committing.

You can apply for a business credit card at high street banks such as NatWest, Metro Bank, HSBC and Barclays. The yearly interest rates can range anywhere from about 13% APR (variable) – 32% APR (variable), depending on the card you choose. For more information on how the business credit cards compare check out money.co.uk.

Example

John runs a bike shop with a monthly turnover of around £10,000. He’s looking to fund his monthly stock purchase so he gets a business credit card from his bank with a credit limit of £2000 at an interest rate of about 1% per month. The first month, John spends £600 on brake pads. At the end of the month, he can choose how he repays. He can pay the entire balance on the card, meaning he’ll only be charged for the interest accrued that month. Alternatively, he can repay a lower amount – anything from the minimum payment up to the statement balance. What he doesn’t repay will be carried over to next month’s statement.

Do I get the same level of protection from my business credit card as I do a personal one?

Unfortunately, for most business credit cards this isn’t the case. Your personal card usually comes with some automatic protections against fraudulent purchases, damaged goods or billing errors, but most business cards don’t offer the same services. That’s why it’s a good idea to closely check the benefits your card offers before you sign up.

Does getting a business credit card require a personal guarantee?

Credit cards represent an unsecured line of credit, meaning that the money you’ve borrowed is not secured against an asset. Instead, the card includes a requirement for the business owner to sign a personal guarantee. This means that she or he is personally and legally liable for repaying the money borrowed.

What are the alternatives to a business credit card?

If you’re planning to apply for a business credit card, it’s worth considering which other finance options might also be available for your business. Credit cards with a high limit can be very difficult to obtain from a bank, so other types of lender may be able to offer you a greater amount of funding.

Find out more about other forms of business funding including business loans, invoice factoring, merchant cash advances and more with our dedicated guides: