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If you own a startup and are looking for a new business credit card, you’ll want one that can help you manage your cash flow, while offering a low rate if you need to sometimes carry a balance. You might even want a card that lets you earn rewards on your spending.
Most importantly, you want to spend as little time as possible managing your credit card – you’re busy enough running your business. Although we can’t guarantee you’ll get all that, we do have a few suggestions on how to find a suitable credit card.
Yes, a limited company or sole trader can apply for a business credit card but it depends on how long you’ve been trading for. Forming a limited company legally separates your personal finances from your business finances. This can help you to build up a business credit rating which lenders will use to assess whether they are happy to let you borrow.
If you just started a company, your credit history will be pretty limited, which means your credit rating will likely be poor. This can make it difficult for lenders to assess your creditworthiness. As a result, you may find it harder to get accepted for a business credit card. Or if you are accepted, the interest rate offered could be higher than advertised and/or your starting credit limit is lower.
If your business is new, some lenders may also choose to look at your personal credit score to help them establish whether they are happy to let you borrow. If your credit score is good, they may be more willing to offer you a business credit card.
You may also be required to sign a personal guarantee before you can qualify for the card. This means you will be personally responsible for any debt you accumulate on your business credit card.
As your business credit score builds over time, you may be able to apply for a more competitive card that offers better rates and a higher credit limit.
This will depend on the type of business you run and what you want to use your card for. If you think you might carry a balance on the card from time to time, you’ll want to look for a card that offers a competitive interest rate.
Alternatively, if you know you can clear your balance in full each month, but you’re likely to use the card often, you may want to seek out a business credit card that offers great rewards.
Overall, you’ll need to work out which features are the most important to you and look for the most suitable card. Here’s a list of features you may want to consider while comparing products:
Representative example: When you spend £1,200 at a purchase rate of 34.3% (variable) p.a., your representative rate is 34.3% APR (variable).
Good rewards business credit cards almost invariably charge an annual fee, so it’s all about how much you envisage using the card. Ideally, you want the highest possible earn-rate for the lowest possible annual fee. Math is your friend. Calculate how much you think you can earn in cashback or rewards and, if it outweighs the annual fee, it’s probably worth it.
You also want to choose the right rewards. For example, if you don’t travel by plane very often, you won’t know what to do with Avios points. Compare all business credit cards on this page to see what else is available on the market.
This will depend on the lender and your individual circumstances. If you have a good personal credit rating and you have opened a business bank account, you may be able to apply for a business credit card as soon as you start trading. This is more likely to be the case if you apply for a credit card with the same provider as your business bank account.
However, some lenders may require that you have been trading for at least 6 to 12 months before they will consider your application.
If you get accepted for a business credit card, one of the best ways to build business credit is to make your monthly repayments on time and stick within your credit limit. Doing so can improve your business credit score after a few months and will give you a record of responsible borrowing for credit reference agencies to report on.
Paying bills and invoices on time can also help you build credit, as can asking your suppliers to share payment data with the credit reference agencies.
If you can’t get accepted for a business credit card, you can consider other business finance options. Secured forms of finance (such as invoice finance) tend to be easier to get accepted for if you have bad credit or a limited credit history because the risk is lower for lenders.
If you’ve set up a limited company, you will have both a business credit score and a personal one. However, as your business is new, it won’t have much of a credit history which means you’ll need to take the time to build up your business credit score.
In the early days of trading, lenders may use your personal credit score to give them an idea of how reliable you are as a borrower. They may also want to see your estimated turnover, along with copies of bank statements and business plans before agreeing to let you borrow.
Note that if you are a sole trader rather than a limited company, there will be no legal separation between your business and personal finances which means lenders will use your personal credit score to determine your creditworthiness.
If you’re a sole trader or you own a small limited company and are the only person who needs a credit limit, you may prefer to use your personal credit card for business expenses.
However, doing so can make it harder to keep your business and personal finances separate so it can still make sense to apply for a separate business card (although not all lenders will accept sole traders for their business cards).
If your business is a limited company, it is even more important to apply for a business credit card, not least because it will help you build up a business credit score. You’re also likely to get a higher credit limit and additional cards that you can give your employees for their expenses.
Getting accepted for a business credit card when your business is just starting out can be more of a challenge but it’s certainly not impossible. Your chances of getting accepted will be higher if your personal credit score is good and you already have a business bank account. By shopping around and checking eligibility criteria carefully, you should find a credit card that suits your business needs.
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