Being self-employed, you’re used to juggling many responsibilities, and managing your business’ finances is one of the most critical. Being accepted for a credit card might be slightly more challenging as a sole trader, but it is still possible.
A good business credit card will make your life easier by helping with expenses, getting you rewards, and even assisting with short-term cash flow. If you’re running solo, finding the right card can mean the difference between smooth financial operations and regular headaches.
In this guide, I will highlight the benefits of using a credit card when self-employed, explain what to consider before applying, and break down the best business credit cards on the market for sole traders.
Do You Need a Business Credit Card as a Sole Trader?
As a sole trader, you could be wondering if you really need to use a business credit card. You might be tempted to mix personal and business funds, especially when starting out.
But using a business credit card, even at the beginning, can help you streamline your operations and get some great advantages in the long run.
Separate Personal and Business Expenses
Using a credit card for your business will keep personal and business expenses distinct, which is absolutely vital.
Simpler Accounting and Bookkeeping – Mixing personal and business expenses can create a mess when tax time rolls around. Having a dedicated business credit card means all your business-related transactions are in one place, easy to track and categorise.
Professionalism – Using a personal card for business expenses can sometimes appear unprofessional, especially if you’re dealing with larger clients or vendors. A business card adds a touch of credibility.
Tax Deductions – When your expenses are mixed, you might miss out on some business tax deductions. With a business card, you can easily pinpoint which purchases were for business, ensuring you claim all eligible expenses.
Improve Your Cash Flow
A business credit card can act as a short-term loan. Most cards have a grace period between the purchase date and the due date for payment without incurring interest. If managed wisely, this can be extremely helpful.
Bridging Payment Gaps – If a client payment is delayed, your business credit card can provide you with the funds needed to keep operations running smoothly.
Leveraging Credit – Making large purchases when necessary without depleting your cash reserves can be advantageous, especially if you’re expecting incoming revenue soon.
Build Your Business Credit
Establishing a strong business credit profile can help your future as a sole trader.
Easier Loan Approvals – If you ever need a business loan or line of credit in the future, having a longer history of responsible credit use can make the approval process smoother.
Better Terms and Rates – A good business credit score will get you favourable loan terms, lower interest rates, and higher credit limits.
Attract Business Partners or Investors – If you’re thinking of expanding, a solid credit profile can make your business more appealing to potential partners or investors.
Get Special Deals and Offers
Many business credit cards come with perks tailored for businesses:
Rewards Programs – Some cards offer cash back, points, or miles for business-related expenses like travel, dining, or office supplies.
Discounts – Exclusive discounts with partner merchants, can lead to significant savings over time, especially if your activity requires a lot of resources or commodities.
Specialised Customer Service – Business cardholders often get priority service or dedicated business helplines, which ensures issues are resolved promptly.
What to Look For in a Business Credit Card as a Sole Trader?
There are a lot of credit cards out there, and each one offers a specific set of features. Here’s a closer look at what to consider when selecting a business credit card as a sole trader:
Interest Rates – While it’s always advisable to pay off your credit card balance in full each month to avoid interest, sometimes that might not be possible. In such cases, having a card with a competitive interest rate can save your business significant money over time. Before settling on a card, compare rates from various issuers to make sure you’re getting a fair deal.
Rewards – The rewards structure of a business credit card can be a major factor in your decision-making. These rewards can take many forms such as cashback on different categories, or travel miles.
Some cards, like the American Express cards, for example, operate on a point system where you earn points for every purchase. These points can later be redeemed for various rewards such as gift cards, merchandise, or even travel.
Annual Fee – Some business credit cards come with no annual fees; others might charge a fee in exchange for premium benefits. If a card does have an annual fee, ensure that the benefits justify the cost. It is not always the case.
Introductory Offers – Some business credit cards come with enticing introductory offers to attract new customers. Offers like 0% interest for the first few months can be especially beneficial if you’re looking to make a large purchase and pay it off without accruing interest.
Reporting and Management Tools – When you’re working alone, tracking and managing expenses can take a good part of your week. Many business credit cards come with integrated software and apps that offer insights into your spending, categorised reports, and even tax documentation. This might save you some precious time managing your budget and simplify your reporting and audits.
Spending Limits and Flexibility – If you make significant business expenses, look for cards that offer higher credit limits.
The Best Business Credit Cards for Sole Traders
| Card | Annual Cost | Minimum Credit Limit | APR | Apply |
|---|---|---|---|---|
 M&S Bank Shopping Plus | £0 | £500 | 23.9% | Apply |
 Santander All in one | £36 | £500 | 27.7% | Apply |
 NatWest Rewards | £24 | £250 | 26.8% | Apply |
M&S Bank Shopping Plus Credit Card
Best For – Low Interest on Purchases
Features
- 18 Months of 0% Interest on Purchases
- Low Regular Purchase Rate of 23.9%
- No Annual Fee
- 15 Months of 0% Interest on Balance transfer
- Earn rewards on Day-to-Day Expenses
- Add an Additional Cardholder for Free
- Competitive 23.9% APR
Santander All-in-One Credit Card
Best For – International Transactions
Features
- 15 Months of 0% Interest on Purchases
- 15 Months of 0% Balance Transfer Fee
- Competitive Account Fee of £3 per Month
- 0.5% Uncapped Cashback on Expenses, Paid Monthly
- No Foreign Transaction Fee
NatWest / RBS Rewards Credit Card
Best For – Low Credit Limit and Good Rewards
Features
- Competitively Low Minimum Credit Limit of £250
- 1% Cashback in Supermarkets
- Flexible Rewards Scheme (Cash, Voucher, Donations)
- Rewards on Overseas Transactions
- 0% Balance Transfer Fee
- Low £24 Annual Cost, Easily Offset by the Rewards
- Excellent Customer Support
What to be Aware of When using a Credit Card as a Sole Trader?
Here are some potential pitfalls to be aware of when using a credit card as a sole trader, and how to best avoid them.
Mixing Personal and Business Expenses
The Pitfall – It might seem harmless to use your business card for a personal expense or vice versa, especially if you intend to reimburse the account later. But in the long run, it will quickly blur the line between what is a legitimate business expense and what isn’t. You may even miss some interesting tax returns.
How to Avoid
- Dedicate specific cards for business and personal use. Do not carry both cards together unless absolutely necessary.
- Regularly review your statements. If a personal expense mistakenly lands on the business account, rectify it immediately.
- Use accounting software or a dedicated bookkeeper to track expenses accurately.
Overspending or Not Managing Credit Properly
The Pitfall – Business credit cards often come with high credit limits. The temptation to spend, especially when chasing rewards or perks, can lead to unmanageable debt.
How to Avoid
- Set a budget for business expenses and stick to it.
- Monitor card balances and payments regularly.
- Pay off the full balance, or as much as possible, every month to avoid interest and reduce debt.
Not Understanding the Card’s Fee Structure
The Pitfall – Business credit cards often come with various fees: annual fees, cash advance fees, foreign transaction fees, and more. Not understanding them right can lead to unexpected costs.
How to Avoid
- Thoroughly read the card’s terms and conditions before applying.
- Be aware of every potential additional fee.
- Consider cards with no annual fees or those where the benefits outweigh the cost of the fee.
Not Considering Long-term Costs
The Pitfall – Many credit cards will try and lure you with introductory offers like 0% APR for the first year or massive bonus points after the first purchase. But once the honeymoon period ends, the card might have high-interest rates or other less favourable terms.
How to Avoid
- Always read the fine print to understand what happens after the introductory period.
- Calculate the long-term costs and benefits, not just the short-term ones.
- Consider how the card aligns with your business’s spending habits and needs in the long run.
How to Best Manage Your Business Credit Card as a Sole Trader
As a sole trader, managing your credit card right will not only help you maintain a healthy financial situation but also build a strong credit history, which might be extremely useful once you grow and develop. Here are the main advice to follow to be sure to get the most out of a credit card.
Set a Budget and Stick to It – Before you start using your business credit card, establish a clear budget for expenses. This should be aligned with your financial goals and your projected revenue.
Categorise Your Expenses – Break down the budget into categories such as travel, office supplies, or client entertainment. This way, you can track and limit expenses in each category.
Review and Adjust – As your business evolves, your needs may change. Regularly revisit your budget to ensure it remains relevant.
Check Your Statements – Make it a habit to check your credit card statements at least once a month. This way, you’ll make sure to catch any discrepancies early on.
Challenge Discrepancies – If you find an error or an unauthorised charge, contact your card issuer immediately to dispute it.
Use Your Card’s Expense Software – Most card issuers provide online tools or apps you can integrate with your accounting software. This will save you time and reduce any potential manual errors.
Use Alerts – Set up alerts for large transactions, nearing credit limits, or foreign transactions to keep a close eye on your card activities and not get surprised.
Avoid Accumulating Debt – Carrying a balance can lead to significant interest charges, which can hurt your business finances. Pay your credit card balance in full, each month. It will help build your credit faster.
Use Grace Periods – Some cards offer a grace period, which allows you to pay off your balance without incurring interest. Familiarise yourself with the terms and make the most of such benefits.
FAQs
Why would a sole trader need a credit card?
As a sole trader, using a credit card will help you manage your cash flow, keep your business expenses separate from personal expenses, earn rewards, and build your business credit. It will also give you financial flexibility during periods of lower income.
Are there any drawbacks to using a credit card for business expenses?
While credit cards can provide some needed flexibility, they also come with a lot of pitfalls, such as high interest rates if balances are not paid in full, the potential for overspending, and the risk of damaging your credit score if you don’t manage them responsibly.
How does a business credit card affect my personal credit score?
Some business credit cards report activity to personal credit bureaus, which can impact your personal credit score. Always check the terms and conditions of the credit card you’re considering.
Is it hard for a sole trader to qualify for a business credit card?
Some credit card companies might require a minimum business income or time in business, while others might primarily consider your personal credit score. It’s crucial to check the specific requirements of each provider.
Are there any fees associated with business credit cards?
Most credit cards come with fees, one way or another. Common fees might include annual fees, cash advance fees, late payment fees, and foreign transaction fees. Most of the cards that are suited for sole traders are usually quite affordable.
