Sole trader business credit cards: everything you need to know

With a business credit card in your back pocket, you can easily separate your business expenses from personal spending. In this guide, we explain how business credit cards for sole traders work and how they can help you grow your venture.

Key takeaways

• Sole traders can apply for business credit cards, but lenders usually assess an individual's personal credit score rather than a business's finances

• These cards can help manage cash flow and separate business and personal spending, making it easier to track expenses

• Using a business credit card responsibly by repaying on time and keeping balances low can help build a business's credit profile over time - unlocking better rates in the future

What is a business credit card?

A business credit card works much like a personal one, giving you access to a set credit limit that you repay in full or in part each month. The key difference is that it's designed specifically for business expenses, helping to separate personal and professional spending.

Business credit cards often come with tools for expense tracking, higher credit limits, and rewards tailored to business needs, making them especially useful for managing cash flow, building business credit, and streamlining accounting.

Can I get a business credit card as a sole trader?

You can apply for a business credit card if you work for yourself, but that doesn’t guarantee a successful application. As always, the key factor is your credit rating.

Although you may want to open a business credit card account to keep your work and personal finances separate, potential lenders need something to go on to decide whether to lend you money. So, they look closely at your personal and work finances. Here’s what you can expect them to scrutinise:

• Your credit reports from the three credit reference agencies – Equifax, Experian and TransUnion

• Proof of income: A tally of your income versus expenditure

• Collateral: Your savings and other assets

• Your business credentials: Your unique taxpayer reference

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What are the benefits of using a business credit card as a sole trader?

There are several advantages to having a business credit card if you freelance or work as a sole trader. Some are purely practical, helping you run your business, while others have additional benefits, in the form of rewards.

Here are the main benefits of a business credit card:

• You can keep your business and personal spending separate, which makes it easier to work out your income tax liability

• Using a business credit card responsibly can help establish and improve your company’s credit rating. A strong business credit score can make it easier to secure loans, increase credit limits, and access better financing options in the future

• You can earn rewards, such as supplier discounts or air miles, and get free travel insurance or cashback with the right card. Figure out what benefits you would welcome most, and consider the rewards alongside interest rates and fees

• Many business credit cards come with a 0% interest introductory offer, enabling you to take more time to repay what you spend. This can be valuable when you're starting out or expanding

Are there any disadvantages to using a business credit card as a sole trader?

Disadvantages are subjective, and will depend on your circumstances, but it’s worth considering the following before applying:

• The flip side of opening a business credit card to improve your credit score is that if you fail to manage your finances adequately, you may end up damaging your company’s credit report

• Business credit cards often come with annual fees, which can slice off a portion of your revenue each year, and may outweigh the benefits on offer

• You may find yourself subject to late repayment fees

• It’s important to avoid the temptation to use your business credit card to cover personal spending, such as a holiday, because this could cause you financial problems in the future

• Staying with the same card may not be a good idea. At some point, if you have a 0% rate as an introductory offer, it will come to an end, so it makes sense to shop around before that happen. Otherwise, you may pay more interest than necessary

What are the alternatives to a business credit card?

Business credit cards aren’t for everyone. You may want to consider other options if you have a poor or non-existent credit history. Here’s a rundown of the main alternatives:

• Charge cards: These are payment cards that you use in the same way you would a credit card. The difference is that they don’t come with a predefined spending limit, you just need to ensure you repay what you spend on them at the end of each month

• Personal credit cards: Although a business credit card offers certain benefits, such as various perks and a way to keep your work and personal spending separate, using a personal credit card remains an option

• Unsecured loans: You borrow a fixed amount and agree to make the full repayment by the end of the loan term. Your debt isn’t tied to an asset, such as your home, but this can mean you face a higher interest rate, and potentially a court case if you fail to repay what you borrow

• Secured loans: These are like unsecured loans, but the lender can seize an item, typically your home or car, if you default on your repayments

• Invoice finance: A lender gives you a cash advance that’s balanced against money you’re owed in unpaid invoices. When your invoices are paid, you repay the money you’ve been advanced, with a small charge added for the service

• Overdrafts: Usually not the best option because interest rates can be high. However, an overdraft can help you out if you need money quickly and for a short period

Other options are explained in our business loan guide.

💡 Editor insight: The tried and tested financial products loved by successful businesses