What is a business credit card and how does it work?

Are you thinking about getting a business credit card? Here’s everything you need to know about what they are, how they work and how you can get one.

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If you’re a business owner or have permission to make purchases on a company’s behalf, then you may be wondering about the benefits of a business credit card.

So how do business credit cards work? And how do they differ from normal credit cards? Here’s everything you need to know.

What is a business credit card?

A business credit card is a type of credit card that can be used for making purchases on an organisation’s behalf. This type of card is available from a number of big-name banks and card providers, including Lloyds, RBS and Barclaycard.

Like a normal credit card, a business credit card attracts interest unless the balance is cleared in full by the payment due date.

Lots of business credit cards come without an annual fee. However, this is rarely the case for cards that come with perks, such as rewards for hitting set spending triggers.

If you’re looking for a new credit card for your business, see our list of top business credit cards.

How do business credit cards work?

Business credit cards work in much the same way as normal credit cards. Any purchases made will be added to your company’s card balance. When this balance is due, your company must fully repay it before the due date to avoid interest.

Business credit cards often provide the option to add a number of additional cardholders, though some card providers will charge extra fees for this.

What can you use a business credit card for?

Business credit cards are designed for purchases required to run a business. For example, they can be used to purchase laptops, stationery, chairs or other office furniture.

Who can get a business credit card?

Generally speaking, if you’ve registered a business and have started trading, you can apply for a business credit card. However, do bear in mind that you’ll still have to pass a credit check. So if you’re a sole trader and you’ve got a poor credit score, you’re unlikely to be accepted.

Before applying, use a Credit Card Eligibility Checker to determine whether you’re eligible for a business credit card.

If you don’t own the business, then you can still get your hands on a business credit card if the company you work for designates you as a supplementary cardholder.

What are the benefits and drawbacks of business credit cards?

Now we’ve covered how business credit cards work, let’s explore the pros and cons of using them.

Pros

  • Trackable company spending: Business credit cards can provide an easy way for a business to keep track of company spending. For example, instead of employees using their own credit cards for purchases and then submitting expense claims later down the line, company purchases can go through a single shared account, making them easier to track.
  • Financing for large purchases: Business credit cards can help finance large purchases in the short term. That’s because they allow businesses to make big purchases up to a specified credit limit. This can be very useful if a business doesn’t have the cash flow to make the payment immediately.
  • Access to emergency funds: These cards provide easy access to emergency funds. This is potentially a big plus if a business ever faces a large, unexpected bill.

Cons

  • Liability for purchases: One major drawback of business credit cards is that liability for purchases often lies with the main cardholder. This means that if employees decide to go on a wild spending spree, the owner of the company credit card will still be liable for the bill.
  • Low credit limits: Credit limits can sometimes be low on these cards, especially if the card isn’t associated with a large business. This can be frustrating, especially if a business often makes a number of large purchases.
  • Section 75 doesn’t apply: Section 75 of the Consumer Credit Act does not apply to business credit cards. That’s because this consumer protection only covers purchases made for personal (not business) use.

How can you get a business credit card?

Applying for a business credit card can be as easy as submitting an online application and sending across any supporting documents. However, some card providers may require you to visit a bank branch in person to prove your identity.

You’ll also be credit checked, so remember that you’ll need to have a decent credit score to be accepted.

To find the best business credit card for you, check out our list of top business credit cards in the UK.