Sometimes you need to access additional funds to grow your business – to obtain new materials, expand production lines or purchase vehicles.
Use our blog series to understand the methods of financing business growth, and the advantages and disadvantages of each option.
Part 6: Business Credit Cards
A business credit card allows purchases to be made in the same way as using a personal credit card.
Some companies prefer having an expenses system or making payments only with money received in.
However, business credit cards can be useful to cover day to day expenses, and can be issued to staff, such as sales executives, for networking and business development meetings.
Advantages
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- Can be issued to multiple staff
- Keep ownership of your business
- Often unsecured
- Offer incentives such as 0% interest, air miles, cashback, insurance, rewards, discounts
- Itemised billing for monitoring and controlling cashflow
- Manage different expenses for company and employees
- Separate business and personal expenses
- Eliminate expense claims
- Build a business credit profile
- Fraud protection and insurance options
- Up to 56 days interest-free credit
- Easier to use online or by phone
- Convenient for travel abroad
- Eliminates the need for petty cash
Disadvantages
- Pay interest and fees
- Expensive if use for cash advances
- Usually only for trading businesses so cannot fund start-up costs
- Often credit rating dependent
- Some suppliers may not accept credit card payments, preferring invoices or bank transfers instead
- Not covered by the Consumer Credit Act if purchase problems
For further information see https://www.moneysupermarket.com/credit-cards/business/.
Costs
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- Interest: repay full balance each month or debt and interest accrue
- Annual fees: most providers charge a small annual fee
- Late payments: extra charges apply for no/late minumum monthly repayments
- Exceeding credit limit: fees are levied for going over the agreed credit limit
- Inactivity fees: dormancy fees may be charged monthly/annually
- Cash withdrawals: an extra fee plus immediate interest is usually charged for ATM withdrawals
- Overseas transactions: using cards abroad may mean incur extra charges
- Accepted payments: some suppliers may not accept credit card payments, preferring invoices and bank transfers instead
For business credit card comparisons see https://www.finder.com/uk/business-credit-cards
Considerations
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Eligibility: Business credit card providers offer different deals depending on their perceived financial risk of the business.
Some banks may only offer credit cards if you open an account with them.
Whilst business credit cards are available to sole traders, partnerships and companies, some lenders may only provide cards to certain legal structures, to reduce their risk.
For example, a new sole trader might be offered a business credit card based on the individual’s strong credit history, without Accounts being available.
However, a new company (as a separate legal entity) with little credit history, or any business with a poor track record, may be unable to obtain a credit card, or may have a lower credit limit and higher interest rate agreed.
Balance attractive introductory rates against the ongoing standard APR to be applied.
If you will repay the outstanding balance in full every month review the advantages of the rewards offered.
Supplementary Cards: Check whether there is a charge per employee card, if there is a maximum number of cards, and if you can set a limit on each card.
For further information see https://www.google.com/amp/s/www.uswitch.com/credit-cards/business-credit-cards/amp/
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