You’ve already got one personal credit card – or maybe more. So do you really need one for your business too?
Having a credit card for business use can actually be a very smart move. This is because a credit card can effectively give you a one month interest-free loan – if you use it responsibly, that is. Businesses often find they need to pay for something while they are waiting to be paid themselves. So you’ve earned the money, but your client hasn’t yet paid you and in the meantime you need to buy more stock, a credit card can help you bridge this gap.
Another reason for using a credit card is that you are more likely to get your money back if you’re a victim of fraud than you are with a debit card.
But do you really need to go out and get a business credit card? If you’re just starting out and you’re not spending much on your business, then it may just be easier to use your personal credit card. (You may want to check the card’s terms and conditions to make sure they allow this, though). But once you’ve got going, it’ll probably be easier if you separate your business credit card purchases from your personal ones.
Here are some things to think about when you compare credit cards:
APR (Annual Percentage Rate)
This is the annual charge of the card based on the cost of purchases, but won’t usually include fees for things like late payment or withdrawal fees.
I had a quick nose around the web and found that the APRs for business credit cards had a similar range to those for personal cards. That said, there was a wide range of APRs on both business and personal cards, so do shop around if you’re looking for either.
Minimum repayment
Credit card providers will require you to make a minimum repayment you need to make each month. You can compare both this and the fee you’ll be charged if you miss a payment.
Fees
Both personal and business cards can charge an annual fee, although this seems to be much less common for personal credit cards than for business cards.
Other benefits to compare
Some personal credit cards offer rewards such as Nectar/Tesco clubcard points or cashback and some business cards offer discounts on AA cover or travel insurance. Both types of card can offer balance transfers.
Minimum income
Most of the business credit cards I checked needed you to have a minimum income expected income of £10,000 over the next 12 months. Many personal credit cards don’t specify a minimum income.
Credit limit
This is the maximum amount that the credit card company is prepared to lend you on your credit card. It’s always good to have some spare credit available on your card to allow for interest to be added. Otherwise you may go over the limit and be charged a fee.
And finally – keep a good credit rating
Your credit rating is the financial information held about you at the credit reference agencies. Most companies that offer credit (for example for mortgages or mobile phone contracts) take your previous credit history into account, so it pays to keep a good credit rating. You can do this by paying your bills on time and staying within your credit limit.
Here are other articles in this series, why not take a look…?
Do I need a business phone line?
Do I need a business bank account?
Note: this information applies to UK readers only.
Image courtesy of David Castillo / FreeDigitalPhotos.net