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What is a business credit card?
There are lots of advantages to using a business credit card to manage company expenses. But what is a business credit card?
Business credit cards are available to businesses of all sizes. They can help companies build a credit profile, spread the cost of big purchases, and separate personal and business expenses. Here’s what you need to know.
What is a business credit card?
A business credit card works in the same way as a standard credit card but for your business expenses rather than your personal spending.
The rates and benefits that come with a business credit card vary from card to card.
But features common to all business credit cards include:
You get a predetermined spending or credit limit – this is usually higher than the limit available on a typical personal credit card
You pay interest on any debts you do not clear in full each month – at the rate set by the card provider
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What are the different types of cards you can get?
As with standard credit cards, you can choose from a range of different types of business credit cards depending on your needs.
The different types of business cards available include:
| Card type | Benefit |
|---|---|
| 0% interest purchase card | Gives you have a set period to pay off your debts interest free |
| Cashback card | Lets you earn back a percentage of the amount you spend each year |
| Reward card | Enables you to earn vouchers and discounts on your spending |
| Travel card | Offers lower fees for overseas or foreign currency spending |
| Air miles card | Provides air miles when you spend on the card |
How to use a business credit card
You can use a business credit card in the same way you would a standard credit card. The type of spending you might put on a business credit card includes:
Travel expenses
Client entertainment expenses
Office or warehouse equipment
Stationery
Supplier or contractor invoices (in some circumstances)
Depending on the type of card you have, you can also use your business credit card to spread the cost of expensive purchases, such as a commercial vehicle.
If you want to do this, the best type of business credit card to choose is one that offers 0% on purchases for a set period. You should then aim to clear the debt within that time.
What are the benefits of using a business credit card?
A business credit card can be useful for managing cash flow, simplifying accounting processes, and keeping your business finances on an even keel.
The benefits of using a business credit card include:
Separating your business and personal expenses – doing this makes it easier to manage your business finances and prepare your tax accounts
Improving your business credit score – making payments on time helps to build a positive credit history for your business so you can get better deals on credit cards and loans in the future
Managing cashflow – using a business credit card allows you to spend even if outstanding invoices mean your reserves are low at the time
Accounting – having itemised credit card statements makes it easier to keep track of your business spending and ensures your company finances are in good shape
Expenses – giving employees their own business credit cards simplifies the processing of expenses by removing the need for claim forms and reimbursements
In an emergency, you can also use a business credit card to cover unexpected costs that could land your business in hot water if left unpaid.
Are there any disadvantages to using a business credit card?
Like a standard credit card, a business card generally charges interest on your balance if you don’t pay it off in full each month.
And if you miss a payment, this can harm your personal credit score as well as your business credit score.
You may also have to pay an annual fee to use business credit cards, which Section 75 of the Consumer Credit Act does not cover.
However, the pros of business credit cards outweigh the cons for most businesses.
What are the alternatives to a business credit card?
There are several alternatives to using a business credit card. The best one for you depends on what sort of spending you want to do.
The main alternatives available to small business owners are:
Business debit cards – you can manage everyday spending with a debit card linked to your business bank account.
Loans – many lenders offer business loans, which you can use to spread the cost of big outlays, such as buying expensive equipment.
You can learn more about these options and other financial tools for businesses by checking out our dedicated business products comparison service. It has details of all the financial instruments you need to run a business – from loans to car payment solutions.
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