Understanding the best business credit cards in 2024

A business credit card is a valuable way for business owners to access short-term finance and manage day-to-day expenses and operations. Business credit cards are one of the simplest ways for businesses to access credit, effectively functioning as a short term loan. 

In recent years, the use of credit cards has increased by small businesses under financial pressure, with credit card financing increasing from 11% in 2021 to 20% in Q3 2023.

In this article look at how business credit cards work, the benefits they can bring to your business and how to apply. Plus, we look into the alternative business funding options that are worth bearing in mind when you want to grow your business.

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What is a business credit card?

Business credit cards are one of several different payment methods for businesses, allowing companies to make purchases as a corporate entity. Business owners and nominated employees can use business credit cards to buy items or services for a company on credit. They then have to pay this money back – often within 56 days – or else they’ll be charged interest on the amount due. 

How do business credit cards work?

• The card provider will set the limit up to which you can borrow. They’ll base this on a variety of factors including your personal and business credit history. 
• Start-ups and sole traders can sometimes find it difficult to get approved for business credit cards. They may also be charged a higher interest rate. If you fall into this category, be sure to shop around
• Businesses with a poor credit history will have fewer choices –  check out how to improve your business credit score here.

Business credit cards work by allowing a business to spend money up to a pre-agreed limit, which the business then has to repay back to the credit card company. 

There is usually a minimum repayment needed every month, plus an interest rate added to the amount due if the borrower has gone past the interest-free grace period.

How Do You Apply for a Business Credit Card?

Applying for a business credit card is similar to applying for a personal one, but with a few key differences. Here's what you'll typically need:

• Business details: Your company name, address, registered number, and contact information.
• Financial information: Annual revenue, number of employees, and other details about your business finances.
• Personal information: Your name, address, and personal credit history (even though it's a business card).

You can usually apply online, by phone, or in person at a bank branch. Each lender will have its own specific requirements and application process. Before applying, it's wise to:

• Research your options: Compare different cards to find one that suits your business needs and spending habits.
• Check your eligibility: Many lenders have pre-qualification tools that allow you to check your likelihood of approval without affecting your credit score.
• Gather your documentation: Make sure you have all the necessary information ready before you start the application process.

What are the benefits of a business credit card?

Credit cards for businesses offer several benefits. These will vary depending on how often you use your card and what you’re using it for. They include:

Building your credit profile

Many new businesses have what’s called a ‘thin’ credit file, where the credit reference agency (and by extension the lender) have little or no credit history on you. 

Credit cards allow businesses to build up a credit profile and increase their credit scores, making it easier to apply for finance in the future

Separating personal and business spending

Especially with younger businesses, it can be a confusing hassle for a business owner to separate their personal spend from that of the business. Having all your business transactions in one place allows for easier management

Managing expenses

Having a centralised account that all your employees use to make purchases allows for easier, more time and cost-efficient ways of managing expenses

Controlling cash flow

Sometimes your spending doesn’t line up neatly with what’s coming in. Maybe a vendor is late in paying you, for example. For smaller amounts, a business credit card can be a useful way to bridge this cash flow gap until the payments start coming in again.

Business Perks

Many providers will offer additional extras – perks – that make credit easier to access, provide bonus features like cashback, or extra protection.

What perks do business credit cards offer?

In addition to their basic functions of short term business credit, business credit cards often include additional benefits to incentivise owners and add on extra value.

• Reward Schemes: With business credit cards with rewards, you can earn points or miles on every purchase, redeemable for flights, hotel stays, merchandise, or even statement credits. These schemes can effectively offset travel expenses or provide valuable perks for employees.
• Cashback Offers: Businesses can receive a percentage of spending back in cash, directly deposited into your account or credited to your statement. This can significantly reduce your operational costs over time.
• Balance Transfer Deals: For businesses holding debt, they can consolidate high-interest debt from other cards onto a business credit card with a 0% introductory APR period. This can save your business substantial interest payments while you focus on paying down the principal.
• Insurance Coverage: Many business credit cards include insurance coverage, such as purchase protection, extended warranties, travel insurance, and even rental car insurance.

What are the risks of a business credit card?

• Limited Consumer Protection: Unlike personal credit cards, business credit cards are not covered under Section 75 of the Consumer Credit Act. This means you might not have the same level of protection for purchases if something goes wrong.
• Not for Large Investments: Business credit cards typically have lower credit limits than other forms of business finance, making them unsuitable for major investments or large purchases.
• Potential for High Fees: Some business credit cards come with hefty annual fees, late payment charges, and high interest rates, which can quickly add up if not managed carefully.
• Limited Customer Support: Some card providers may only offer dedicated customer support to company directors, which can be inconvenient for employees who need assistance.

Looking for financing for a larger purchase? An iwoca Flexi-Loan can help you access capital quickly, on your terms.

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What are the different types of business credit cards available?

There are a range of types of business credit card for different purposes and use cases, often linked to the type of perks involved. 

• Cashback Cards: Earn a percentage of your spending back in cash, directly reducing your expenses and boosting your bottom line.
• Travel Rewards Cards:  Ideal for frequent travellers, these cards accumulate points or miles for flights, hotels, and other travel expenses.
• Rewards Cards: Beyond travel, earn points on everyday spending like office supplies or dining, redeemable for merchandise, gift cards, or statement credits.
• Charge Cards: Require full payment of the balance each month, promoting responsible spending and avoiding interest charges.
• Purchase Cards: Offer extended interest-free periods on purchases, helping manage cash flow, especially for larger expenditures.
• 0% Interest Cards: These provide an initial period of 0% interest on purchases or balance transfers, allowing you to consolidate debt or make significant purchases without accruing interest immediately.

Do business credit cards require a personal guarantee?

Yes, business credit cards often require a personal guarantee. Credit cards offer an unsecured line of credit – similar to unsecured business loans – meaning that the money you borrow isn’t secured against an asset (like property, for example).

Instead, the card agreement requires the business owner to sign a personal guarantee. This means they are personally and legally liable for repaying the money they borrow.