How Business Credit Cards Work

Updated on 28 March 2022

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Everything You Need to Know About Business Credit Cards

Business credit cards help businesses to manage their short-term business needs. The credit facility allows business owners to make purchases, pay suppliers or deal with a financial emergency.

Credit cards are popular with business owners because of the benefits they offer such as helping to bridge cash flow gaps and making the tracking of expenses easier. Business owners can also save costs by earning rewards. Its biggest advantage, however, is that unlike other forms of credit, business owners do not need collateral to secure credit card funds.

Before applying, make sure that you are choosing the right form of credit for your business’s needs. Here is a guide to help business owners to navigate the ins and outs of credit cards.

How they work

Your credit card gives you access to a pre-approved amount of money that you can spend, provided your account is in good standing. You are required to repay the money within a set time – either in total or a minimum amount. You will then be charged interest on the outstanding amount if you exceed the interest-free period.

What you need to apply

Applying for a credit card is reasonably easy. You can apply at any of the major banks and most will let you apply online.

Like all unsecured lending, banks will consider your credit score, trading history, turnover and profit before extending you a line of credit.

How banks determine credit limits

The credit limit refers to the total amount of money that you can spend on your credit card. Valentine Jingura, Head of Pricing for FNB Business, shared the following factors that banks will consider when setting your credit limit.

  • If you have an existing bank account that is in good standing.
  • If you can afford minimum monthly instalment payments.
  • Updated financial records.
  • A good credit record.

Uses for your credit card

Your business credit card can be used to pay for any of your day-to-day needs such as buying office supplies and fuel or paying suppliers and freelancers.

How to make the best use of your credit card

  • Make use of the interest-free days – save money by paying off the balance before the end of the interest-free period.
  • Plan your spending – it will help if you know exactly how much revenue is expected to come into the business over the next 15, 30, 60, and 90 days.
  • Track your everyday business expenses like rent, utilities, and freelance contractors.
  • Have multiple cards on the same account so that you can manage employee expense claims and other expenses for the office separately.

Mistakes to avoid

  • Ignoring perks such as fuel savings and travel insurance.
  • Not checking your statements regularly.
  • Not paying the full outstanding amount and getting charged interest.
  • Making costly cash withdrawals and transfers to your current account.
  • Using a credit card for long-term credit needs.
  • Not separating your business and personal expenses.

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