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When does getting a business credit card make sense?

Which should it be, a personal or business credit card? They operate in much the same way, but your choice could make the world of difference if you are a sole trader, start-up business or someone who makes purchases for a larger company.

If you are at the crunch point of deciding whether to take out a business credit card, it’s time to consider the pros and cons.

Pros of business credit cards

Firstly, do you run a business or make purchases for the company you work for? If so, you are likely to find a business credit card useful.

A business credit card operates in much the same way as a personal credit card, with APRs, credit limits and minimum monthly payments, but the credit card account is in your company name not your own.

So what is the upside to having a business credit card?

  • Separating business expenditure from personal expenditure – Having a business credit card helps to separate your personal finances from your business finances.
  • Cashflow – If a customer hasn’t paid an invoice, a business credit card can give you some flexibility in cashflow, meaning you won’t necessarily be out of pocket.
  • Higher credit limit – Business credit cards tend to offer higher credit limits than personal credit cards, as the limit is based on your business income rather than your personal income.
  • Additional cards – The likelihood is that if you are running a business, more than one person will need access to a credit card. A business credit card account usually allows you to have some additional cardholders for free.
  • Work expenses – Rather than employees having to fill in complicated expenses forms and try to remember to make claims, they can place all business expenses on the business credit card.

Cons of business credit cards

In most scenarios, if you are looking to use a credit card for business expenditure, then the pros of a business credit card will outweigh the cons. But that doesn’t mean there aren’t some possible drawbacks to be aware of.

  • Less protection – Purchases made on a business credit card are not covered by Section 75 of the Consumer Credit Act 1974, which protects purchases between £100 and £30,000. So if something were to be faulty or fail to arrive, you would not be able to claim for compensation.
  • Tougher criteria – There are stringent checks on business credit accounts, particularly if your business is relatively new. Similarly, different cards have different criteria for defining what types of business can apply. Some will lend to sole traders, while others will require a business to have a defined turnover. Additionally, for almost all business credit cards in the UK, businesses applying will need to be registered in this country.  
  • Fees – Business credit cards are more likely than personal credit cards to carry annual fees. What deal you can achieve often depends on the size of your company, but credit card accounts that offer more supplementary cards and other rewards typically have an annual fee attached.

Alternatives to a business credit card

If you have read the above and decided that a business credit card is not for you but you are still in need of something to support your business spending, there are alternatives available.

You could look to simply have a debit card attached to a business current account. The main difference with this is obviously that your bank would not be lending you any money, so whatever you spend on your card you need to have in your account.

Alternatively, you could look at a business charge card. This is a card with which you can make purchases, but you will need to pay your balance in full each month. A charge card can help with the cashflow issue and removes the potential for interest rate charges, but it does mean you cannot carry a balance over. If you fail to pay your balance in full each month, you will be subject to late payment fees, and missed payments can negatively impact your credit score.

Ready to find the credit card that’s right for your business? A great place to start is our list of the top business credit card offers.

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