Business Credit Card

A Business Credit Card is a short term funding option which gives you access to a bank card with a set purchase limit. This card works just like a personal credit card, allowing you to draw down cash from an ATM or pay for goods and services at the point of sale or online. Though business credit cards are a viable option for all types of business, they may be very difficult to get approved for – especially if you’re looking for relatively large amounts of credit.

Quick 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 does a Business Credit Card work?

Business Credit Cards provide a business owner with access to a revolving line of credit. This means that once approved, you’ll be able to use the funds whenever you need them by paying for goods and services using the card. The amount you’re approved for is the credit limit on the card. Just like a regular consumer credit card, your account will accrue interest if the balance is not repaid in full each month.

The amount you’re approved for will typically be far less than a traditional business loan or fixed line of credit can offer. That means if you’re looking for funding for more substantial purchases, a Business Credit Card probably won’t be suitable. It can 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 does a Business Credit Card cost?

When you make a purchase using a Business Credit Card, the value of the purchase will be added to your account balance. At the end of your billing cycle (generally 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 you, meaning you can choose to pay more or less of the balance down. The longer you hold a balance on your account, the more interest you’ll pay.

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. Interest rates on Business Credit Cards can vary wildly, so make sure you check the terms of your 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.

Typical 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 notepads. 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 or he can repay a lower amount – anything from the minimum payment up to the statement balance. Any amount that he doesn’t repay will be carried over to next month’s statement.

Frequently Asked Questions

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. Make sure you 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, meaning that she or he is personally and legally liable for repaying the money borrowed.

Alternatives to a Business Credit Card

If you’re planning to apply for a Business Credit Card from your bank or other provider, it’s worth considering which other finance options might be available for your business. Credit Cards with a high limit can be very difficult to obtain from a bank, so some other providers may be able to offer you a greater amount of funding. You can find out more about them below:

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