8 Benefits of Business Credit Cards
Managing Director + Co-Founder
Whether you’re a sole proprietor, a small start-up business or part of a large corporation, applying for business credit cards comes with a wide range of advantages for both you and your employees. This guide will run through 8 business credit card benefits you can expect, from higher spending limits to travel rewards.
The most obvious advantage of business credit cards is their ease of use, whether you or your employees are making transactions online, over the phone or in person. Not to mention, having a credit card to hand out to staff can help develop trust and build employee relationships. If you’re a little hesitant to hand the card out however, several providers offer ‘employee misuse insurance’ to protect you against any exploitation of the business credit card.
Business credit cards are also incredibly efficient when it comes to monitoring tax. One problem many business owners run into is the mountain of receipts they receive whenever employees spend money on company inventory. Tax and bookkeeping are areas of business many CEOs and directors stay away from. But with a business credit card, monitoring tax deductibles becomes easy. If you can give your employees copies of your card, you will have a clear transaction history of everything that can be deducted in tax. You’ll never have to fuss around with endless reels of receipts again.
Some of the best business credit cards are those that offer reward points for your spending. On these programmes, you can earn around 1-5 rewards points for every £1 you spend on the card. These can result in discounts on business supplies, as well as travel and insurance rewards.
What Rewards Can You Get with a Business Credit Card?
There are a range of benefits you can get with a business credit card. Each card is different and will often focus on specific rewards, such as travel points or cash back. Some cards allow you to choose what rewards you receive. What’s more, certain companies have partnerships that offer interesting benefits, such as free airport lounge access in a wide variety of airports.
Many business credit cards also have joining bonuses that are easily achievable if you are putting large business expenses on your cards. If you spend a certain amount in the first one to three months, you have the opportunity to receive thousands of free points which you can use on rewards. If done correctly, you can take advantage of free flights, accommodation, and online shopping vouchers simply through using your card to fuel your business.
3. Monitoring cash flow
One of the main advantages of credit cards for business is that you can easily keep track of your company’s spending. This is especially useful when tax season comes around and you can consult your credit card statement. This is also essential in controlling employee spending and monitoring how much money is going where.
Monitoring cash flow when you first start a business is essential given that you may be on a tight budget, bootstrapping your way to success. You’re going to want to track all spending and make sure money is going in all the right places. With a business credit card, you can make sure you’re not overspending in low priority areas, making your business more efficient in the process.
4. Monitoring Company Growth
A sneaky benefit of using business credit cards is that you can track the growth of your company. This is a tip that not many business owners know about nor take advantage of, but it can be incredibly helpful when calculating goals and impressing lenders. You can see how your finances have changed over time and where money is being spent.
5. Building credit history for your business
Similarly to personal credit, your company has a business credit score too. If you use your company credit card regularly, you are likely to build a positive credit history for your business. This is important to build trust and credibility, which is one of the first things potential lenders will check if you apply for a business loan.
How Can You Use a Business Credit Card to Improve Your Score
The easiest way to improve your credit score is through making payments on time. If you end up missing a payment, this comes up as a huge red flag and can seriously damage your credit score. If you are to get a business credit card, aim to pay all the borrowed money back on time. Timely, consistent repayments are a green light and can help boost your business credit score, giving you a better chance at receiving future loans.
The second quickest way to improve your credit score using a business credit card is through actually using it. Credit Reference Agencies (CRAs) don’t have much data to go on if you haven’t been using credit. If there’s a lack of information, they have the right to use your personal credit history as an indicator instead. Make sure that you have repayment data and use your credit card as a means to demonstrate you’re a reliable borrower.
However, just because using credit and paying it back is an effective way to improve your credit, there is a recommended limit to how much you should be borrowing. Your credit utilisation ratio is an important measure of how much you’re repaying on your credit on a monthly basis. Using too much too regularly can actually have a negative effect. It’s recommended you keep your credit utilisation ratio at around 20%. This means if your credit limit is £1000, try to keep your monthly borrowing below £200.
6. It won’t influence your personal credit rating
While using your business credit card builds your business credit history, it generally won’t affect your personal credit scores. This is because business credit stands alone and is linked to the financial history of the company rather than the business owner. Therefore, you needn’t worry about any crossover between personal and business credit.
The only time your personal credit will crossover with your business credit is if you have no data to show the CRA in regard to your borrowing habits. This is why it’s important to spend a bit of money on your credit card and pay it back immediately, so you have something positive to show the agencies.
7. Increased protection
As stated, some business credit card providers include ‘misuse insurance’. But this isn’t the only coverage you can get with business credit cards. Some providers include the likes of travel accident insurance and identity theft policies, which is generally more protection than what is provided with a personal credit card.
8. Higher spending limits
Finally, as well as increased protection, business credit cards generally offer higher spending limits than other credit cards, as business transactions are likely to be more costly. This allows you to be flexible with payments and lets you cover everyday expenses without worry. Not to mention, your spends and annual fees are fully deductible from your tax bill at the end of the year.
Not only are spending limits higher on business credit cards but, in some cases, you can also receive interest free cards if you’re a start-up. When you’re starting a business, the last thing you want to have is interest shadowing your every step. You want flexibility to purchase materials and inventory freely, not having to worry about the increasing debt.
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