Business credit cards aren’t exclusively for large enterprises. Even if you’re a freelancer or gig worker, you are generally eligible to apply for one, and they can offer a multitude of advantages for your professional activities.
Access to Capital for Your Business
Business credit cards can provide a swift and convenient source of funds for various business requirements. They can effectively bridge the gap between when you need to make an immediate payment and when you receive payment from your clients.
Entrepreneurs can leverage business credit cards for initial business setup costs and early expenses, such as signage, inventory, and marketing. Furthermore, businesses can use these cards to acquire significant assets like machinery, office furniture, or essential electrical equipment. This flexibility allows your business to generate revenue over time while gradually paying off the card balance.
Maintaining Separate Financial Records
When managed responsibly, a business credit card is instrumental in maintaining a clear distinction between your personal and business finances. This separation is crucial, particularly if you face legal action or bankruptcy. If your business records reveal a routine co-mingling of personal and business accounts, or if business assets were frequently used for personal gain, your limited liability protection could be jeopardised. Without this protection, typically gained by operating as a corporation or a limited liability company (LLC), your personal assets could be at risk.
Enhanced Bookkeeping and Accounting Features
If you’re still weighing the necessity of a business card, consider the sophisticated management tools often bundled with certain cards. These can prove incredibly useful depending on your business’s specific needs, offering capabilities such as:
- Real-time usage reports for each cardholder on the account.
- The ability to set individual spending limits for cards.
- Instant cancellation or suspension of credit cards.
- Immediate access to historical activity for every card.
- Setting up custom account alerts for individual cards.
- Adjusting cash advance limits.
- Streamlined transaction reconciliation against statements.
- Automatic data feeds to your existing bookkeeping and accounting software.
- Automated categorisation of expenses for easier expense management.
- Access to account controls via mobile devices.
Tax Advantages
Business credit cards can also offer significant tax-related benefits:
- Maximising tax deductions: Using business credit cards for capital equipment purchases can open up valuable tax planning opportunities. For instance, if you use a credit card to pay for equipment repairs before the end of the financial year, you might be able to claim a tax deduction in the current year, even if you pay off the card balance later.
- Tax simplification: Many modern business credit cards come with advanced reporting and accounting features that simplify the process of downloading detailed expense reports. This information can often be automatically integrated into popular small business accounting software programs.
Maximising Rewards
Many business credit cards come with rewards programmes, and there are several strategies to maximise these benefits:
- Timing the sign-up bonus: To earn a lucrative sign-up bonus, you typically need to spend a certain amount within a few months. Apply strategically when you anticipate large business expenditures that will help you meet this threshold.
- Utilising multiple business credit cards: If you’re comfortable managing more than one card, consider using different business credit cards for various types of expenses. For example, a flat-rate cashback card could be used for everyday spending, while a rewards card with bonus categories might be best for specific, higher-spending areas of your business.
- Deducting interest and fees: Remember that interest charges and annual fees on business credit cards are often considered legitimate business expenses, meaning they could be tax-deductible.
Types of Business Credit Cards
There are generally two main categories of business credit cards: those designed for small businesses and corporate credit cards. The focus here is on cards for smaller businesses, but as your business expands, corporate cards may become a viable option.
Small-Business Credit Cards
Whether you operate as a limited company or a sole trader/freelancer, if you have a good personal credit history and sufficient income, you will likely qualify for most small-business credit cards. While most card issuers do not report to dedicated business credit bureaus (in the UK, this is less common for small business cards than in the US), it’s always worth checking with your specific issuer. It’s crucial to understand that even if your business is unsuccessful, you are typically personally responsible for any debt incurred on a small-business credit card.
Corporate Credit Cards
Corporate credit cards are generally designed for larger businesses, often those with substantial annual turnovers (e.g., typically over £4 million in the UK). These cards tend to offer higher credit limits than small-business cards, along with more sophisticated management tools and generous rewards programmes. P-cards, also known as purchasing or procurement cards, are a type of corporate card specifically designed for managing company-wide purchases and employee spending, often functioning as charge cards that require the full balance to be paid monthly.
A key distinction with corporate cards is that the business itself is the debtor, meaning that if your company ceases trading, you are generally not personally liable for the card debt, unlike with many small-business cards.
Who Qualifies for a Business Credit Card?
You don’t need a physical storefront, a large warehouse, or significant physical assets to qualify for a business credit card. If you have a good personal credit history (and potentially a good business credit history if your business is established) and meet the issuer’s other criteria, you can obtain a business credit card in virtually any industry. Therefore, don’t be deterred if you are self-employed or fall into one of these non-traditional business categories:
- Etsy, Amazon, or eBay sellers
- Freelancers
- Independent contractors and consultants
- Self-published authors
Furthermore, you don’t necessarily have to be profitable or have operated your business for a certain number of years. The approval process for many small-business cards is often based primarily on your personal credit history and income.
However, if you’re a new business owner with a lower personal credit score, you might find it challenging to qualify for a traditional business credit card. In this situation, a secured business credit card could be an option. These cards offer limited credit access but can help you build both your personal and business credit history, allowing you to eventually qualify for more advantageous business credit cards.
While forming a separate business entity (like an LLC or limited company) is generally recommended for liability protection, it’s not always a prerequisite for obtaining a business credit card. It’s possible to secure a business credit card even as a sole proprietor. Just ensure you maintain robust record-keeping practices to easily track your business expenses.
What You’ll Need to Apply for a Business Credit Card
When applying for a business credit card, you’ll typically need to provide the following information:
- Business name: If you don’t have a formal registered business name, you can usually use your full legal name. You’ll also need to specify your industry.
- Business type: This can be a corporation (Limited Company in the UK), LLC, partnership, or sole proprietorship. If you haven’t formally structured your business, you’ll most likely fall under the sole proprietorship category.
- Personal information: You’ll need to provide your contact details, and typically your National Insurance number (NINo) in the UK. For businesses, an Employer Identification Number (EIN) or Company Registration Number (CRN) may also be required, though many sole traders won’t have an EIN.
- Time in business and annual business income: If you’re new to the business world and haven’t generated income yet, you can often report £0 for now.
- Personal guarantee: As noted, most small-business credit cards require a personal guarantee. This means you are personally responsible for any debt incurred on your business credit card, even if your company fails.
Understanding and Improving Your Business Credit Score
Just as individuals have a personal credit score, established businesses often have one or more business credit scores that lenders use in the UK (e.g., from Experian, Equifax, Dun & Bradstreet, CreditSafe). Business credit scores typically range from 0 to 100, or sometimes a higher scale, with higher scores indicating lower risk.
Business credit bureaus collect information on your outstanding balances and payment history from various sources, including:
- Banks
- Business credit card issuers
- Trade associations and organisations
- Suppliers (vendors)
- Manufacturers that provide goods or inventory on credit before payment
Knowing Your Issuer’s Credit-Reporting Policies
To build a distinct credit history for your business, choose a credit card issuer that reports your credit activity specifically to business credit bureaus. In the UK, key business credit reference agencies include Experian, Equifax, Dun & Bradstreet, and CreditSafe. All major business credit card issuers generally report information to at least one business credit bureau.
How to Improve Your Business Credit Score
Just as you should maintain your personal credit score and ensure accuracy in your credit report, the same applies to your business credit score. Keep these tips in mind to help your business credit score climb:
- Pay all bills and invoices on time—preferably early. This is often the single most critical factor in commercially used credit-scoring systems.
- Limit your business’s overall debt. Maintain a healthy credit utilisation ratio.
- Form a limited company or an LLC. This can sometimes aid in establishing a separate business credit profile more distinctly.
- Regularly check your business credit history for errors before applying for new credit. If you find mistakes, contact the relevant credit reference agency to have them corrected.
How to Compare Business Credit Cards
When evaluating business credit cards, consider these key aspects:
What Rewards Do You Want to Earn?
Card issuers structure their rewards and incentive programmes differently to attract diverse business segments:
- Cashback business credit cards: These rewards are generally straightforward. Your business earns a percentage (often 1% to 5%) back on its spending, frequently in popular business categories such as office supplies, shipping, and advertising.
- Points or miles rewards business credit cards: Many business credit cards reward users with points or miles on purchases like electronic devices, software, and cloud systems. These points/miles can be exchanged for goods and services, including flights, travel accommodation, and sometimes even cashback or gift cards through the card’s rewards programme.
- Co-branded or loyalty cards: These cards offer enhanced bonuses for spending with, and redemption at, a specific brand. They often provide deeper discounts and superior perks as a reward for brand loyalty. Popular examples include airline and hotel co-branded cards.
To estimate your potential rewards, project your most likely future expenses, particularly in areas such as:
- Air travel
- Hotel stays
- General travel and entertainment
- Fuel
- Telecommunications (mobile devices, internet, etc.)
- Shipping and mailing
- Computer hardware and software
- Office supplies
If one of these categories represents a significant expense for your business, it will help you pinpoint which business credit card is the best fit.
Check Sign-Up Bonuses and Annual Fees
To attract new customers, credit card issuers often offer attractive sign-up bonuses designed to encourage initial card usage.
Annual fees can vary widely, from £0 to several hundred pounds. Many cards do not charge an annual fee, and some that do will waive it for the first year. Some cards may offer a statement credit to offset the annual fee or waive it if you meet a certain spending threshold over the year. Always conduct a cost-benefit analysis to determine if the annual fee is justified by the rewards and benefits you expect to receive.
Do You Need Additional Cards for Employees?
If your business has employees, you might want to provide them with access to the business line of credit for business-related purchases. Some issuers provide additional cards for employees free of charge, while others levy a fee for each supplementary card. Be sure to check the fine print.
Compare Other Features
- Foreign transaction fees: Some credit card companies charge a fee (e.g., up to 3%) for transactions made in a foreign currency. This is a crucial consideration if your business involves international travel or purchasing from overseas suppliers.
- Cardholder benefits: Most business credit cards, particularly travel-focused ones, come with a standard suite of perks, which might include emergency roadside assistance, extended warranties on purchases, and travel insurance. Many business cards also offer robust management reports to help you organise your business, track costs, and simplify tax reporting.
Methodology Note: The selection of “Best Business Credit Cards” is typically based on factors such as annual fee, Annual Percentage Rate (APR), balance transfer fees (if applicable for business cards), foreign transaction fees, rewards earning rates, reward redemption processes, and the value of sign-up bonuses, as well as general cardholder benefits and issuer satisfaction ratings. The ideal card for any business depends heavily on its specific needs, spending patterns, and financial health.