Legal Requirements
There are certain legal requirements that business credit card issuers and businesses must adhere to in relation to business credit cards in the UK.
Consumer Credit Act 1974
The Consumer Credit Act of 1974 sets out regulations for credit agreements, including business credit cards. It provides consumer protection measures and governs aspects such as business credit card agreements, disclosure requirements, and dispute resolution.
Financial Conduct Authority (FCA) Regulations
The FCA regulates the financial services industry in the UK, including credit cards. Business credit card issuers must comply with FCA regulations. These cover areas such as responsible lending, transparency in pricing and terms, and treating customers fairly.
Anti-Money Laundering (AML) Regulations
Businesses issuing credit cards, as well as those applying for credit cards, are subject to AML regulations. These regulations aim to prevent money laundering and terrorist financing by requiring businesses to implement measures for customer identification, due diligence, and ongoing monitoring.
Data Protection Laws
Business credit card issuers must comply with the UK’s Data Protection Act 2018 and the General Data Protection Regulation (GDPR) when handling and processing the personal data of business customers. They are required to protect customer information, obtain appropriate consent, and provide transparency in data usage.
Consumer Rights Act 2015
The Consumer Rights Act applies to business credit cards used by sole traders or partnerships with fewer than ten employees. It provides consumer protection in relation to unfair contract terms, faulty goods or services, and dispute resolution.
Competition Law
Business credit card issuers must comply with competition laws, such as the Competition Act 1998 and the Enterprise Act 2002. These laws prohibit anti-competitive practices, including collusion, abuse of market dominance, and unfair pricing.
Business Location
Business location can have an impact on the eligibility for UK business credit cards. While the specific criteria may vary between providers, the business location is often considered due to regulatory and risk assessment factors.
Legal and Regulatory Compliance
UK credit card issuers typically require businesses to be registered and operate within the United Kingdom to ensure compliance with local laws, regulations, and financial standards.
Verification and Documentation
Lenders may request proof of business address, such as utility bills or tenancy agreements, to verify the authenticity and legitimacy of the business. This helps prevent fraudulent activities and ensures compliance with anti-money laundering regulations.
Accessibility and Support
Some business credit card providers may have geographic limitations on the areas they serve or prefer to offer their services to businesses located within their operational reach. This can impact eligibility for businesses located outside their specified service areas.
Risk Assessment
Lenders assess risk factors associated with different locations. Factors such as economic stability, industry trends, and local market conditions may influence their decision-making process. Businesses located in areas with perceived higher risks may face more stringent eligibility criteria or higher interest rates.
International Operations
For businesses with operations in multiple countries, the location of the headquarters or primary business address may be a factor. Some business credit card providers may require a UK-based business address, even if the business operates globally.
Business Type
Business types can significantly influence eligibility for UK business credit cards. Lenders often have specific criteria and preferences based on the legal structure and nature of the business.
Limited Companies
Limited companies, also known as corporations, are separate legal entities from their owners. They are typically considered lower risk by lenders due to their formal structure and liability protections. Credit card providers often have more lenient eligibility criteria for limited companies, making it easier for them to qualify for business credit cards.
Partnerships
Partnerships involve two or more individuals or entities coming together to run a business. Depending on the type of partnership (general partnership, limited partnership, etc.), lenders may assess creditworthiness based on the personal credit history of the partners or the partnership’s financial statements. Eligibility criteria for partnerships may vary among lenders.
Sole Traders
Sole traders operate as individuals without forming a separate legal entity. Since there is no legal distinction between the owner and the business, credit card issuers may consider the personal credit score of the sole trader when evaluating eligibility. The income and financial stability of the sole trader’s business may also be assessed.
Limited Liability Partnerships (LLPs)
LLPs combine features of both partnerships and limited companies, providing partners with limited liability protection. Lenders may evaluate LLPs similarly to limited companies, considering factors such as financial statements and credit scores.
Non-Incorporated Businesses
Certain businesses, such as freelancers, self-employed individuals, or unincorporated entities, may face more stringent eligibility requirements for business credit cards. Lenders may place greater emphasis on the individual’s personal credit score, income stability, and business financials when evaluating eligibility.
Age of Business and Applicant
Some credit card issuers may have a minimum age requirement for your business, often requiring it to be operational for a certain number of months or years. The minimum age of the applicant for a UK business credit card is 18.
Turnover
Turnover provides insights into a business’s financial stability, ability to generate income, and capacity to handle credit card repayments.
Minimum Turnover Requirement
Many credit card providers set a minimum turnover threshold that a business must meet to be eligible for a credit card. This threshold varies among lenders and can range from a few thousand pounds to several million pounds annually. The purpose of this requirement is to ensure that the business has a certain level of financial stability and the ability to manage credit card repayments.
Credit History
Business credit history plays a crucial role in determining the eligibility of UK businesses for credit cards. It provides lenders with insights into a business’s past financial behaviour and creditworthiness.
Credit Score Assessment
Lenders typically review the business’s credit score, which is a numerical representation of its creditworthiness. A good credit score indicates a history of responsible borrowing and repayment, increasing the chances of approval for a credit card.
Credit Reports
Lenders may request credit reports from credit reference agencies, such as Experian or Equifax, to evaluate the business’s credit history. These reports provide detailed information about the business’s borrowing activities, outstanding debts, and repayment patterns.
Lenders consider the business’s track record of making timely payments on existing credit accounts.
Length of Credit History
The length of a business’s credit history also influences eligibility. A longer history provides a more substantial track record for lenders to assess creditworthiness.
Other Eligibility Requirements for Business Credit Card Applications in the UK
Identification and Verification
Lenders will conduct identity and address verification checks on the business and its directors/owners to prevent fraud and ensure compliance.
Financial Stability
Lenders may evaluate the financial stability of your business by reviewing financial statements, such as profit and loss statements and balance sheets.
Affordability
Credit card providers will assess the affordability of the credit limit you are applying for, ensuring it aligns with your business’s income and expenses.
Director’s Guarantees
In some cases, lenders may require directors or owners to provide personal guarantees, holding them personally responsible for any outstanding debt in the event of business default.
Purpose of Card
Lenders may consider the intended use of the credit card, such as business expenses, travel, or cash flow management.
Industry Restrictions
Certain industries or business types may have limitations or restrictions imposed by credit card issuers due to perceived higher risk.
Existing Debt
Lenders may consider your existing debts, loans, or credit card balances when assessing your creditworthiness.
FAQs
Why do businesses need a business card?
A business credit card can be beneficial for businesses that face unexpected expenses. It can also help with cash flow for businesses that are waiting for invoices to be paid.
Does a personal credit score affect business credit?
Personal and business finances can sometimes affect one another. A commercial lender can look at your personal credit score as a hard credit check will be conducted. That said it can still be possible to get a business credit card even with bad credit.
What is the difference between a personal credit card and a business credit card?
Personal credit cards are primarily intended for individual consumers to make personal purchases and manage personal finances. They are used for everyday expenses, such as groceries, dining, travel, and online shopping.
On the other hand, a business credit card is specifically designed for business-related expenses, such as office supplies, business travel, vendor payments, and other operational costs.
The liability for personal credit cards is with the individual while business credit card liability is with the business.
How can I increase the credit limit of a company credit card?
The best way to increase the credit limit of a corporate credit card is by making a request with the lender. Online submissions can be carried out easily on online accounts.
Introductory offers typically start with a low credit limit. Lenders can often offer a higher limit based on the business credit score and borrower’s conduct. The limit offered can be an important factor when choosing the best business credit card.