The Bionic guide to business credit cards

Les Roberts, Senior Content Manager at Bionic
By Les Roberts, Senior Content Manager

Understanding business finance is vitally important when you are setting up or running a small business. There are myriad options available and Bionic can help you find the right one for your particular needs.

You might want long-term financing, in the form of a small business loan, or something more flexible like an asset financing arrangement. Business credit cards can be useful if you need short-term credit or your business experiences uneven cash flows. This guide will tell you everything you need to know about business credit cards for small businesses.

What is a business credit card?

A business credit card in the UK - sometimes known as a corporate credit card - is very similar to a personal credit card. The key difference is that the card will be issued to a business rather than an individual.

Just as with a normal credit card, payments are made monthly and you have the choice of either paying off the balance in full every month or making a minimum payment. But credit cards charge interest so making smaller payments will mean your balance takes longer to clear and your borrowing will cost more in the long run.

Who can use a business credit card?

A business credit card can be used by employees of your company, or its owners and directors, to make purchases on behalf of the company. 

Business credit cards may not be available to all UK small businesses, as they are a form of what is known as ‘unsecured lending’. That means that a business will have to prove that it is creditworthy before a bank or other card issuer will offer credit.

Why use a business credit card?

The most common reason a business might want to use a commercial credit card is to help manage cash flow over a short period of time. Paying for business purchases or staff expenses with a commercial credit card can help you spread the cost out, but you need to ensure you keep on top of any spending done on the card and keep up with the monthly repayments. 

Another advantage of business credit cards is that they can be relatively straightforward to apply for, compared to other types of finance, and provide an easy way to keep track of your employees’ business expenditure. This is a useful tool for any company that have lots of daily spending as part of their normal business operation.

Business credit cards also allow you to establish a credit history for your company. This can prove useful when applying for other types of finance - especially for startups and small businesses that might otherwise get turned down for a loan. 

Some business credit cards in the UK also offer incentives that might make them attractive to small businesses. These can include air miles, which are handy for businesses that require a lot of overseas travel. 

There are plenty of other rewards that some credit cards offer to small businesses. For example, cashback business credit cards will give back a percentage of everything you spend as cash. A cashback business credit card is particularly useful if you plan to repay the full balance of your card every month.

Do you need a good credit score to get a business credit card?

Your personal credit score and business credit score are unrelated. So, if you are worried about having a poor personal credit history when applying for a business credit card, don’t be. However, be aware that banks in the UK are unlikely to offer a business credit card with no credit check.

In some cases, a commercial credit card issuer may have little to go on when deciding what kind of card to offer to your business - particularly if you are looking for start-up credit as a new business. In this circumstance, a card issuer might use your personal credit score to decide whether or not to offer a card to your business.

There are a number of ways you can build up your business credit score. The most accessible is usually through trade credit, which is a type of short-term borrowing used to pay for specific items, such as furniture. It works in a similar way to how an individual might pay for a car, for example, through a financing deal.

If you are a sole trader with a poor personal credit score, it is unlikely you will be able to apply for a business credit card, at least until you improve your own credit history.

Are UK business credit cards personally guaranteed?

Whether or not you need to personally guarantee a UK business credit card depends on which issuer you are dealing with and the size of your business.

For start-up credit cards, it is highly likely that a card issuer will ask for a personal guarantee when you apply for a card. However, if you are a long-term customer of a particular bank, you may be able to negotiate over whether or not a personal guarantee is necessary.

If your business is already of a decent size and has a good trading record, banks may decide to waive the guarantee.

What are the advantages of using a business credit card?

The advantage of using a business credit card is its simplicity. You can easily keep track of spending, which is especially useful if you have a number of members of staff who incur regular business expenses.

You can also use a commercial credit card to build your business’s credit history and improve the firm’s credit score. This can help secure better borrowing terms when you apply for other business loans - and is especially important for new businesses that need to secure start-up credit.

Business credit cards can also help you spread out payments for larger expenses. Many businesses experience uneven cash flows, and having a business credit card means you can still spend while waiting for revenue to come in.

Many business credit cards offer rewards too, including cheap air travel, discounts on insurance, or cashback.

What are the disadvantages of using a business credit card?

The biggest downside of a business credit card is that it can be an expensive way to borrow money if you don’t plan on paying off the balance in full every month. Interest rates tend to be high and the cost can quickly build up.

Commercial credit cards also may have a relatively low limit on how much you can borrow. Although a business credit card will often have a higher limit than a personal credit card, most businesses can borrow substantially more if they use other types of financing, such as a small business loan.

Another thing to be aware of is that business credit cards don’t offer consumer protection in the same way as personal credit cards too. In the UK, any purchase between £100 and £30,000 made on a personal card is protected under law, but this is not the case with commercial credit cards.

How to choose the best small business credit card

Choosing the best small business credit card can be something of a minefield. There are dozens of options out there, so it is important to understand which one is best suited to the needs of your business.

At Bionic, we can help you make an informed choice about what the best small business credit card is for your business. But there are a few key points to keep in mind. 

First, check out the cost. The APR - or Annual Percentage Rate - gives an indication of how much interest you will have to pay on your card every year. Also, check whether your card issuer charges an introductory fee and how much this is.

Another important factor to bear in mind is what happens if you miss or are late with a payment, or go over your credit limit. Most card issuers charge a fee, so find out how much this is.

You should also compare what rewards different cards offer. If you are likely to use your business credit card on a regular basis, these rewards could end up saving you money on all sorts of business expenses.

How to get a business credit card for a new business

It is relatively straightforward to apply for a business credit card in the UK, whether you are a new or established business. In fact, if you have a personal credit card, then you will probably already be familiar with much of the process. And processing an application for a small business credit card should take no longer than for a personal card.

After completing an online application, the first thing a lender will do is run a credit check on your business - this is mandatory, and no responsible or credible lender will offer any type of credit without first running a credit check. For a new business with no credit history, however, a lender might instead use your personal credit score before deciding whether to issue a card.

New businesses may also be offered a lower credit limit by a commercial card issuer. However, this limit could go higher as the business proves its creditworthiness over time.

How much can you borrow on a business credit card in the UK?

Credit cards providers set limits based upon each applicant's individual circumstances and credit history. This means that the amount you can borrow on a business credit card will depend upon the state of your business's finance and its credit score

If you're just starting out or you have a poor credit score, you'll most likely be offered a lower borrowing limit. If you need a higher borrowing limit, lenders will usually need to see evidence of an excellent credit rating, strong income and little debt.

Can you get a business credit card as a sole trader?

Any type of company owner can apply for a business credit card, including sole traders. When you apply, you'll need to give the following information to your lender:

  • Proof of income - This includes bank statements, tax returns and profit and loss statements. Some providers might need to see evidence of a minimum monthly income before they'll accept your application.
  • Proof of your business - This includes your trading name and unique taxpayer reference (UTR), which you'll have been given when registering your business.  

Your lender might also look at your personal credit score when assessing your application. Having some business and/or personal savings may also help, as this will provide further evidence that you can manage your money responsibly.

Do business credit cards offer payment protection?

Unlike, personal credit cards, business credit cards aren't covered by Section 75 of the Consumer Credit Act. This means you can't claim from your credit card provider if you bought something that didn't arrive or was not as described, or if the company you bought from was fraudulent or it goes bust.

Some business credit card providers will offer some level of protection, such as against fraudulent online use or misuse by an employee, but you need to check the terms and conditions before you apply.

Do you need a business credit card?

A credit card can be useful for keeping on top of cash flow and building your business credit score,  but you need to make sure you use it properly. 

A credit card should never be used for long term borrowing. Instead, you should try to use it to cover certain monthly expenses - such as travel and stock replenishment - and pay the balance off in full at the end of each month. This way you avoid paying any interest on your purchases and regular use can help to build your credit score.

You can also use a corporate credit card to buy big-ticket items and equipment instead of applying for a business loan. The important thing here is to make sure you pay the balance off as quickly as possible to cut the amount of interest you're charged.

What are the alternatives to a business credit card?

There are many alternatives to a business credit card available to small businesses in the UK

For start-up businesses, you could apply for a prepaid payment card that allows employees to spend money without the business going into debt.

For more established businesses that are worried about uneven cash flows, short-term financing options such as bridging loans or invoice financing might be a better option.

At Bionic, we know every business is unique and has unique financing needs. Our team of experts is on hand to help you find the right type of financing to help your business flourish.

How can Bionic help with your business costs?

At Bionic, we want to help your business save time and money when comparing and switching business essentials -  those critical products and services that help keep your business running from day to day. This includes business energy, insurance, phone and broadband. We can also help you find a business loan to cover everything from cash flow to growth plans.