While almost all of us are familiar with personal credit cards and how they work, for the owner of a small- to medium-sized enterprise (SME), a business credit card is a slightly different concept.

Unlike a traditional credit card, a business credit card aimed at SMEs is especially designed to help business owners better manage their company affairs. The card can be used for all business transactions, to pay for the purchase of goods, such as new stock or equipment, as well as for any services rendered by a local or overseas supplier.

It also acts as an alternative to checks and cash, easing cash flow in the day-to-day transactions associated with running a business.

This guide to SME credit cards aims to help you gain a greater understanding of how a business credit card works, the eligibility criteria and the pros and cons for an SME of signing up for one.

How business credit cards differ to personal credit cards

While a personal credit card is issued on the basis of an individual’s credit assessment, for an SME or business credit card, the credit agreement is between your business and the bank – which includes the fees for using the card and the amount of interest payable on balances. This means that the card is issued to the business and its designated employees, rather than an individual, and is based on an assessment of your business establishment.

Business credit cards come with higher credit limits than personal cards but, like a normal credit card, a business credit cardholder will receive a statement every month listing all the transactions made over the course of the month, including the place, price paid and often the type of item purchased.

The onus on making the repayment lies both with the business enterprise and the employees to whom the card has been issued. The monthly statement is sent to a designated person named by the company, who is expected to make payments on the outstanding balance on behalf of the organization. The SME has a certain amount of time to pay the bank back for those purchases, and a period of time (a ‘due by’ date) that is often longer and more flexible on business credit cards than traditional cards.

At this point, a business owner can either opt to pay the full amount – therefore canceling out any interest they have to pay on the outstanding balance – or pay a lower amount, or even the minimum balance stipulated on the statement by the lender. Those that do not pay off the full amount will be charged interest on the outstanding balance at a rate set out in the credit agreement.

[ Compare SME credit cards ]

Is my business eligible for a credit card?

To be eligible for a business credit card, banks may demand a minimum period of operation, sometimes three years, making it harder for start-ups or early-stage businesses to qualify for a card. The bank may demand certain profitability and revenue criteria and want to see documents proving earnings. The bank will link spending limits on a credit card to a company’s cash flow.

Which emirate a business operates in may also be relevant to eligibility, with some banks only issuing to companies operating in the more established emirates of Dubai and Abu Dhabi. However, not all banks require SMEs to have a current account with the bank in order to qualify for a business credit card.

When a company applies for a business credit card, their application will be assessed by a specialist credit analyst, with the approval process generally taking longer than for a personal card because of the more complex nature of proving a company’s eligibility for the card.

[ Related: Guide to bank accounts for SMEs | Guide to bank accounts for SMEs | Guide to SME Islamic Finance ] 

Benefits and red flags with an SME credit card

Benefits

  • Keeps personal and business spending separate, simplifying administration and providing an easy way to monitor and measure business outgoings.
  • Higher credit limits for a business card than a personal card. While the business will generally have a consolidated credit limit assigned to it, designated employees of the company can also receive individual credit limits. Additional cards for key employees also eases the payment process for day-to-day transactions.
  • Cashback on spending: Cardholders can earn cashback at retail outlets, which effectively acts as a discount on payments, improving a company’s bottom line.
  • Flexibility on repayments: Whether it’s longer interest-free periods to make repayments or zero percent installment plans on goods bought from selected merchants, SME cards come with a host of repayment privileges. This helps a business negotiate better discounts, as it does not then need a credit period from a supplier.
  • Lower interest rates: Business credit cards often come with lower rates than personal cards.
  • Higher cash advance limits: Sometimes up to 90 percent of the credit card’s limit. This is ideal for the small business owner with a temporary cash flow crisis.
  • Lifestyle rewards: These can include air miles, complimentary ‘meet and greet’ services at UAE airports, airport lounge access and discounts on travel and hotels – a useful tool for a company founder who needs to regularly travel for business. Other benefits such as dining and golf privileges are useful for networking with clients.
  • Insurance benefits: These can range from comprehensive travel insurance to free fraud protection and special rates on business and office insurance.
  • Partner alliances: Business credit cards often have lucrative partnerships with outlets in the UAE and around the world, from car rental companies to office stationery, office equipment and courier services. This network can offer your business valuable discounts.

[ Compare SME credit cards | Compare SME business finance | Compare SME equipment finance ]

Red flags

  • Interest: If you do not pay off your outstanding balance in full, you will incur interest, which varies between lenders and effectively increases the price of your purchase.
  • Fees: There are a range of fees to watch out for, such as annual fees and incidental charges. These can include fees for a card replacement, late payment, spending over your limit, having a duplicate statement issued for the accounts department and so on. It is wise to ensure you know exactly what fees apply to the card you have signed up for. Also, with business taking you across borders, you must factor in currency conversion fees as well.
  • Cash withdrawal costs: While a business credit card allows high cash advance limits, be careful when using the credit card to withdraw cash, as there is no interest-free period on cash withdrawal from a credit card.
  • Changes in terms and conditions: Banks can change credit card terms without notice, so make sure you keep abreast of any changes introduced as they may affect how much the credit card costs your business each month
  • Debt you can’t afford: Remember, while the idea of instant credit to pay suppliers or buy essential equipment is a great reason to have a business credit card, the risk of running up debts your business cannot pay off is something to be wary of.