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Business credit cards

Business credit cards work in the same way as personal credit cards. But rather than coming from your personal account, they’re paid off from your business account instead. They let you borrow money to help manage your cash flow. But how do they work?

How do they work?

If you’ve ever had a personal credit card then you probably already understand how a business credit card works, as they’re more or less the same. The main difference is what they’re used for, how they’re paid off and how the interest rate is determined.

With a credit card for your business, you’ll be given a maximum amount that you can borrow. This amount is determined by the creditworthiness of your business. You can use this amount to pay for any business expenses.

Each month, you’ll receive a statement showing you how much you owe in total, the minimum payment you’ll need to make, and how much interest you’ll have to pay if you don’t pay the full amount that month.

What is the eligibility criteria?

There’s no specific criteria to be eligible for a business credit card – it all depends on your business’s creditworthiness. When you apply for a card, the bank will want to know your credit rating, your business’s turnover and the time you’ve been trading.

As credit cards are a form of unsecured lending, you won’t need to offer any assets as collateral. This is good news for smaller companies, and especially businesses in the hospitality industry who tend not to have a lot of assets available.

What if I have bad credit?

Unfortunately, if you have a bad credit rating, you’re unlikely to be accepted for a credit card. It’s not impossible, though – you might just have to settle for a card with a lower limit than you’d like or a higher interest rate than you’d like.

If you are able to get accepted for a card, using it can help you build your credit rating up. As long as you pay back what you owe on time, of course.

What can you use a business credit card for?

Essentially, you can use it for any business expenses. Credit cards are especially helpful if you want to spread the cost of a big purchase over a longer period of time. Just bear in mind you’ll need to pay interest, as you won’t be paying the full amount off each month.

Can you earn rewards?

Yes – like personal credit cards, business credit cards can come with rewards including cashback, points you can earn and concierge services. Make sure you pay attention to the annual fee, though, as cards with lots of rewards generally have higher annual fees.

What are the key things to compare?

It’s always a good idea to shop around for the best deal. When doing so, here are the key things to compare between the different cards:

  • Interest rate – This is how much you’ll pay on top of the money you borrow. The interest rate is only relevant if you won’t be paying off the full statement balance each month. It’s usually express as an annual percentage rate (APR).
  • Annual fee – With some credit cards, you’ll have to pay an annual fee. As we said above, cards with more rewards tend to come with higher annual fees. So make sure the fee doesn’t cancel our the potential benefits!
  • Charges – A card might include extra charges which you’ll need to pay attention too. A common one is a charge for inactivity.
  • Credit limit – This is fairly self-explanatory – it’s the maximum amount you’ll be able to borrow on the card. The amount you’ll be able to borrow will depend on how creditworthy your business is, and it may go up over time if you pay on time.
  • Rewards – Some cards come with rewards, so consider these when you’re making a comparison. Just make sure the rewards aren’t cancelled out by the annual fee or any extra charges.