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Updated: 7 November 2024
When you get a business credit card, thoughts immediately turn to how it can help—be it paying for expenses or providing more flexibility with cashflow cashflow. But with various rates, fees and charges to consider, you’ll need to grasp the costs involved first. That’s the purpose of this guide, which looks at what you need to know about business credit card pricing.
The main cost associated with business credit cards is the interest rate, a percentage you’ll pay on any balance you carry over from month to month.
When comparing cards, look at the Annual Percentage Rate (APR) figure. It includes the interest rate plus any mandatory charges, so get a clearer picture of the overall cost.
APRs on business credit cards are different depending on the lender. The rate you’re offered will factor in aspects like your business’s credit history and financial situation.
Some cards offer introductory rates as low as 0% for a set period, usually 3-18 months. After this, the rate will revert to the standard APR.
Many business credit cards offer an interest-free period on purchases, usually around 40 days. If you pay your balance in full each month, you won’t be charged interest on new purchases made during this time. The Funding Circle Cashback business card, for example, offers 42 days interest-free, while FlexiPay from Funding Circle doesn’t have any interest, as it’s replaced by a one simple flat fee per transaction.
It’s worth noting that cash withdrawals usually start accruing interest immediately, even during the interest-free period. It’s always best to check with the lender to be sure if this applies to your credit card.
Most business credit cards have variable interest rates, meaning the rate can change over time and is usually in line with the Bank of England base rate. Some cards offer fixed rates, which can provide more certainty but may be higher than variable rates.
While interest rates are a key consideration, different types of fees can also impact the overall cost of a business credit card. With Funding Circle cards there’s no fee involved, meaning you won’t be charged for either FlexiPay or the Cashback card. Some business credit cards, however, can charge around 1.5% to 3.5% in credit card fees.
Some business credit cards charge an annual fee, typically ranging from £30 to £150. Cards with higher fees often come with extra perks like rewards programmes or travel insurance.
Many providers waive the fee for the first year to attract new customers. Some cards have no annual fee at all, including Funding Circle business credit cards, which may be a good option if you’re looking to keep costs down in regards to annual fees.
Using your business credit card to withdraw cash usually incurs a fee, typically around 3% of the amount withdrawn. Minimum charges tend to be between £3-£5.
Remember that interest is often charged on cash withdrawals from the day you make them, even if you pay your balance in full.
If you use your card abroad or make purchases in a foreign currency, you may be charged a foreign transaction fee. It’s usually between 2.75% and 3% of the transaction amount, although the number can vary depending on the lender.
Some business credit cards aimed at frequent travellers offer fee-free overseas spending, which could save you money if you often make international transactions.
If you’re looking to move existing debt onto a new card with a lower interest rate, watch out for balance transfer fees. These are typically 2-3% of the amount transferred.
Some cards offer fee-free balance transfers, usually as an introductory offer. This can be a good way to consolidate and manage business debt, but make sure you have a plan to pay off the balance before any introductory low-rate period ends.
If you miss a payment or pay less than the minimum amount due, you’ll likely be charged a late payment fee. It’s usually around £12, but can vary between providers. Late payments can also negatively impact your business credit score, potentially making it harder or more expensive to access finance in the future.
Exceeding your credit limit can result in an over-limit fee. These costs also tend to be around £12 but vary depending on the lender. Some providers may decline transactions that would put you over your limit instead of charging a fee.
Depending on the card and provider, you might encounter other fees or charges. These could include costs in regards to additional cardholders, charges for paper statements, fees for getting a replacement card or charges for copies of past statements. Always check the terms and conditions to understand all potential costs.
While not directly related to rates and fees, rewards and cashback offers can offset some of the costs of using a business credit card.
Many cards offer rewards points on spending, which can be redeemed for travel, merchandise or statement credits. The value of these rewards can vary widely, so it’s worth calculating how much benefit you’d actually get based on your typical spending patterns.
Some cards offer cashback instead of points. For example, the Cashback card offers 2% cashback on purchases for the first six months, up to £2,000, and then 1% thereafter.
When weighing up rewards, consider whether there’s an annual fee and how it compares to the value of rewards you’re likely to earn.
Understanding how interest is calculated can help you manage your card more effectively. Most card providers use a method called ‘average daily balance’. Here’s how it works:
Some providers use the ‘daily balance’ method, where interest is calculated on the balance at the end of each day.
It’s also important to note that different interest rates may apply to different types of transactions. For example, purchases, cash advances and balance transfers might all have different rates.
Your monthly statement will show a minimum payment amount, which is typically a percentage of your balance (often around 1-3%) or a fixed amount (e.g. £25). Whichever is higher.
While it might be tempting to only pay the minimum, going down this route can be costly in the long run. Interest will continue to accrue on the remaining balance, potentially leading to a cycle of debt.
Your credit limit is the maximum amount you can borrow on your card, set by the card provider based on factors like your business’s financial situation and credit history.
Staying well below your credit limit can help your credit score. Many experts recommend using no more than 30% of your available credit, though this isn’t set in stone. Some providers allow you to request a credit limit increase after you’ve had the card for a while and demonstrated responsible use.
With so many factors to consider, choosing the right business credit card isn’t always a straightforward decision. Here are some steps to help you make the best choice and avoid making mistakes:
Think about how you plan to use the card. Will you pay off the balance in full each month or carry a balance? Do you need to make international transactions? Are you looking to earn rewards?
If you think you’ll carry a balance, prioritise finding a card with a low APR. Remember that the representative APR advertised is only offered to 51% of successful applicants—you may be offered a higher rate.
Don’t just focus on the interest rate. Factor in any annual fees, and think about which other charges might apply based on how you’ll use the card.
0% interest periods on purchases or balance transfers can be useful, but make sure you have a plan for when the introductory period ends.
If you’re confident you can pay off your balance each month, a rewards card could offer good value. Just make sure the rewards align with your business spending and needs.
Many providers offer eligibility checkers that give you an idea of your chances of being accepted without affecting your credit score.
Always review the terms and conditions carefully before applying. Pay attention to things like minimum payments, how interest is calculated and any circumstances that could trigger a higher interest rate.
Once you have a business credit card, managing it effectively can help you avoid unnecessary costs and make the most of its benefits.
Business credit cards can be a valuable part of your financial strategy when used wisely. Just remember that the best value doesn’t always come from the lowest interest rate or the card with the most perks. It’s about finding the right balance of costs and benefits for your specific business needs.
Always read the terms and conditions carefully, keep track of your spending and aim to pay more than the minimum payment each month to keep costs down. With the right approach, a business credit card can help you manage cash flow, track expenses and even earn rewards on your business spending in the case of the Cashback card.
Business credit cards can be valuable for managing expenses and cash flow, as long as you understand the rates, fees and charges involved. Comparing options, reading the fine print and using your card wisely will help find a solution that fits your business needs while avoiding unnecessary costs.
07/11/24: 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.
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