Business Credit Cards: How do they work?

If you’re considering applying for a business credit card, learn all about how they work, if their rewards are taxable, what you can spend them on, how to apply and more below.

How do business credit cards work?

They work much like a personal credit card. Once accepted, your provider agrees to a credit limit, which you can access however frequently you want. If you repay the credit you use each month, you won’t be charged interest. But if you carry the balance over to the next month, you’ll be charged interest on top of your monthly repayment.

Are business credit card rewards taxable?

Credit card rewards are not usually classed as taxable income. If your employee has purchased goods (like any other customer) and received credit card rewards such as air miles, cashback or points, these aren’t taxable for business. This means you don’t have to report them to HMRC.

Do business credit cards affect personal credit?

In some instances, yes. Some providers will ask you, as the cardholder, to sign a personal guarantee. This means that if your business defaults on the card repayments, the provider will expect you to repay the balance out of your personal funds.

In this case, the provider will conduct a hard credit check into your personal finances, a check that will remain on your credit file short-term, temporarily affecting your credit score. If you fail to make repayments from your personal funds, this can also negatively affect your credit score.

How long should a business keep credit card receipts?

If you’re a limited company, you must keep your receipts for six years; if you’re a sole trader, five years. However, you don’t have to keep the paper receipts as long as they’re stored and saved digitally. Many banking apps, like Tide, allow customers to attach receipts to every transaction, making it easier to keep track of expenditures for tax purposes.

Receipts you must keep include credit card statements, invoices, other expense receipts, VAT and personal income records, and bank statements.

How much can I get on a business credit card?

The credit limit on your business credit card depends on your business finances, trading history, and your personal credit history. Some providers, like Capital On Tap, offer credit limits up to £250,000.

Some credit card companies offer credit facilities, so should you need to access more money, these pre-approved loans can be useful.

What can you use business credit cards for?

There are no hard and fast rules about what to spend your business credit card on. You can use it for all kinds of business-related purchases like:

• Dining clients
• Transport to attend meetings
• Office supplies
• Buying stock
• Purchasing new equipment (like computers and printers)
• Pay supplier invoices
• Pay rent and utility bills

Can I get a business credit card as a startup?

If your trading history is limited or non-existent, it can be harder to find a provider that will give you a business credit card. But it’s not impossible. You’ll find you have fewer options to choose from, you might also find that providers aren’t willing to give you large credit limits, and you may end up paying higher interest rates.

How to apply for a business credit card

When applying online, you’ll be asked for basic business information, including address, legal structure and company registration number (CRN). The provider will also want to know more about things like your turnover and trading history.

After you complete your application, the provider will reach out for further information if necessary. Then they’ll run a credit check (sometimes both business and personal), a decision will be made quickly, and if approved, you can await your new credit card.

Do I need a Business Credit Card?

When figuring out if a business credit card makes sense for your business needs, ask yourself these five questions:

1. Can you pay the bill in full every month? If not, interest charges can cause your debt to spiral quickly.
2. Does your business qualify? Lenders will usually ask for a few months' worth of business bank statements, and some may only give credit cards to limited companies. Always check that you meet the eligibility criteria before you apply.
3. Do you need access to finance quickly? You can qualify for a credit card in a matter of minutes and get a decision within just 24 hours. Please however note that some business loans can be available on the same day as your application too.
4. Do the credit card rewards align with your business needs? One of our business credit card providers, Capital On Tap, gives customers 1% cashback and charges no annual fees. Always compare providers to get the most suitable rewards.
5. Are you happy to sign a personal guarantee? Most providers will ask you to sign a personal guarantee. Make sure to research what’s required and whether you’re happy to take on the risk before applying.

Key takeaways

There’s no doubt that a business credit card can help support your business as it grows — whether you’re a new business or established. But, as with every type of business finance, you should always consider the advantages and disadvantages of taking out a business credit card.

A business credit card is worth considering if you need fast financing or want to build your business credit score and can comfortably afford the monthly repayments.