What is a business credit card, and how does it work?

Business credit cards work similarly to personal cards but are designed specifically for company expenses. They let you borrow money for business costs and pay it back later, often with rewards for typical business spending. While they share some features with personal cards, business credit cards usually offer higher limits and perks tailored to entrepreneurs. 

Here’s what you need to know about how they function and whether one might benefit your company.

What is a business credit card?

A business credit card is a revolving line of credit designed specifically for company expenses. It allows you to make purchases and pay them off over time, giving you flexibility in managing your cash flow.

While you can technically use a personal card for business costs, credit card issuers offer products tailored to business owners’ needs. These tend to come with higher credit limits and features, such as making it easier to track business spending and potential tax deductions.

How do business credit cards work?

Business credit cards function much like personal cards:

• You’re given a credit limit based on your creditworthiness and business financials.
• You can spend up to that limit, making purchases for your business.
• Each month, you’ll receive a statement detailing your charges.
• You can choose to pay the full balance or make a minimum payment and carry the rest over.
• If you don’t pay in full, you’ll be charged interest on the remaining balance.

Key features of UK business credit cards

So, what can you expect when using a business credit card? From understanding credit limits to the fees involved, here’s what you need to know:

• Credit limits: Often much higher credit limits than personal cards due to the type of expenses businesses can make regularly. 
• Interest rates: Typically range from 15% to 40% APR, depending on the card and your creditworthiness. 
• Rewards: Many cards offer cashback or points on business-related spending categories like office supplies, travel or advertising.
• Fees: Annual fees can range from £0 to £200-plus, depending on the card’s features.

Benefits of using a business credit card

Is it worth getting a business credit card? The answer ultimately depends on your type of business and finance needs, but there are several benefits to owning one. 

Separate business and personal expenses

Using a dedicated business card makes it much easier to track company spending and simplifies your accounting and tax preparation. 

Build business credit

Regular use and timely payments can help establish and improve your business credit profile, potentially leading to better financing options in the future.

Manage cash flow

Business credit cards can help smooth out irregular income and expenses. That often means you get a buffer when waiting on customer payments.

Earn rewards on business spending

Many UK business credit cards offer substantial rewards for common business expenses, which can add up to significant savings over time. Take Funding Circle’s Cashback card, for example. It offers an unbeatable 2% cashback on every payment for the first six months (or £2,000 cashback, whichever comes first), followed by 1% cashback on everything you spend thereafter.

Payment flexibility

Many business credit cards offer flexible payment options, so you can manage your cash flow more effectively. At Funding Circle, we go a step further with FlexiPay. It’s a flexible line of credit that lets you make business payments in a range of ways, including bills, expenses or direct transfer. Then choose how you repay over 1, 3, 6, 9 or 12 months, giving you even more control over your business finances.

Potential drawbacks to consider

It’s only fair to look at potential considerations as well as the benefits when it comes to using a business credit card. 

• Personal liability: Most UK business credit cards require a personal guarantee, meaning you’re responsible if the business can’t pay.
• Higher interest rates: Business cards often have higher APRs than personal cards, making carried balances more expensive.
• Fewer protections: Some consumer credit protections don’t apply to business cards.
• Annual fees: Premium business credit cards may have substantial yearly charges.

How to qualify for a UK business credit card

Each lender has its own set of criteria, so it ultimately depends on who you choose to get a business credit card with. As a rule of thumb, most lenders tend to look at:

• Personal credit score: The majority of cards require a good to excellent personal credit history.
• Business structure: You may need to be a registered limited company or established sole trader.
• Annual turnover: Some cards have minimum revenue requirements.
• Time in business: Newer companies may face stricter criteria.

For Funding Circle eligibility, we ask you’re 

• Based in the UK
• A limited company or LLP
• Have at least two years of trading history
• Have an annual turnover of at least £40,000
• If you are not a limited company or LLP, you can still apply for a business loan.

Already have FlexiPay? Our Cashback card is not yet available for existing customers, we’ll be in touch as soon as this is available to you.

What is the application process like for a business credit card?

Again, this comes down to the lender, but you typically need to provide: 

• Business details: Legal name, structure, industry and company number
• Personal information: Your name, address and sometimes personal income
• Financial information: Annual turnover and estimated monthly card spend

Many UK card issuers offer quick online applications with fast decisions. Check out Funding Circle’s application process for Cashback and FlexiPay. 

Types of business credit cards

There are many different types of business credit cards on the market, catering to the unique demands of business owners. Some of the most popular include: 

• Cashback cards: Offer a percentage back on purchases, often with higher rates in specific business categories.
• Rewards cards: Earn points that can be redeemed for travel, merchandise or statement credits.
• 0% purchase cards: Offer interest-free periods on new purchases, which can be useful for financing large expenses.
• Charge cards: Require full payment each month but may offer higher spending limits and robust rewards.

Using your business credit card responsibly

The primary goal with a business credit card is to manage it well. Therefore, it’s worth considering the following when it comes to using your business credit card responsibly.

• Set clear policies: Establish guidelines for employee card use, including spending limits and approved categories.
• Monitor transactions: Regularly review statements to catch any unauthorised charges.
• Pay on time: Late payments can result in fees and damage to your credit score.
• Consider setting up a direct debit: This ensures you never miss a payment due date.
• Choose the right card: Select a card that aligns with your business spending patterns to maximise value.

Learn more about avoiding potential business credit card mistakes

Summing up: Business credit cards

Business credit cards can be valuable for companies, offering flexibility, rewards and easier expense tracking all in one go. Understanding how they work and using them responsibly means you can use a business credit card to support your growth should you decide that applying for one is the right choice.

28/08/24: 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.