The role of business credit cards in startups and small businesses

Every penny counts when you’re just starting out in business, but sometimes you need to spend money to make money. That’s where business credit cards come in. They’re not just about flashy rewards (though those are nice too). For startups and small businesses, they can play a central role in your finances. Here’s how. 

Getting off the ground with initial financing

It’s not uncommon for businesses that are a year or two old to pivot or create new products and features. But doing so can cost time and money, and that can be tricky if your cashflow isn’t consistent (a scenario many startups face). It’s essentially a chicken-and-egg situation. You need money to fund your ideas and grow, but you need to bring money through the door consistently. 

This is where a business credit card can be helpful. It can provide an injection of capital needed to get things moving. Whether you need to buy inventory, create new products or pay for your next marketing campaign, a business credit card can offer flexibility. Of course, this comes with a word of caution. Remember that you’ll need to pay this money back. So use it wisely, and have a solid plan in place.

Cash flow management to keep the lights on

Cash flow is the lifeblood of any business, but for startups and small businesses it can be more like a rollercoaster. One month you’re doing well and everything’s looking good; the next you’re scraping the bottom of the barrel.

A business credit card can help smooth out these bumps. If, for example, you’ve got a large invoice coming in next month but need to pay your suppliers now, your credit card can bridge that gap. It gives you the flexibility to make essential purchases even when your cash reserves are low.

If possible, always try to pay off your balance in full each month. Those interest charges can add up quickly if you’re not careful. And with a card like the Funding Circle Cashback business credit card, you get 42 days interest-free. 

Building your business credit

Something many new business owners don’t realise is that your business has its own credit score, separate from your personal one. And just like your personal credit, you need to build it up.

Using a business credit card responsibly is one of the easiest ways to start building your business credit profile. Make your payments on time, keep your utilisation low, and you’ll be on your way to a solid business credit score.

Why does this matter? Down the line when you’re looking for larger loans or better terms from suppliers, a good business credit score can open doors and save you money. Funding Circle supports startups with flexible loan options, and a business credit card can complement this by providing additional financial tools.

The importance of keeping business and personal finance separate

When you’re just starting out, it’s tempting to use your personal credit card for business expenses. After all, what’s the difference, right? Mixing personal and business finances, however, can complicate many factors, especially when it comes to filing a tax return. 

Many business credit cards also come with tools to categorise your spending, generate expense reports and even integrate with accounting software. Consequently, you can keep a narrow overview of your business expenses without overcomplicating everything. 

Rewards: Getting the most out of your business credit card

Let’s talk about everyone’s favourite part of credit cards: rewards. Many business credit cards offer cashback or points on your spending. And when every penny counts, getting a bit back can make a big difference.

Take Funding Circle’s Cashback card, for instance. It offers an unbeatable 2% cashback on all your spending for the first six months, up to £2,000, then 1% cashback after that. That’s money offset against future bills, just for buying what you need anyway.

Just remember that rewards should be the icing on the cake, not the sole reason you choose a card. Always look at the overall package. Again, the Cashback card from Funding Circle offers 42 days interest-free, a credit limit of up to £250,000, and is free to use with no hidden costs. 

Summing up: Credit cards and small businesses 

For startups and small businesses, a business credit card can be as much a convenient way to pay for things as it is an enabler to help build credit while even earning something back on your spending. But it needs to be used responsibly. Keep a close eye on your spending, try to pay off your balance in full each month and always have a plan for how you’ll pay back what you borrow.

Used wisely, a business credit card can help turn your startup dreams into small business success. And who knows? Maybe one day you’ll be swiping that card to pay for your first office lease or to hire your hundredth employee. Dream big.

02/10/24: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.