Managing a business with bad credit can be challenging, especially when it comes to securing and using a credit card to help you deal with your cash flow.
But having poor credit doesn’t mean you’re completely out of options. Some credit cards are perfectly suited for businesses in this situation.
In this guide, I will present a selection of the best credit cards available for businesses with poor credit scores.
Your business’ credit history might be a roadblock, but with the right card and the right habits, it doesn’t have to be a dead-end.
Understanding Business Credit VS Personal Credit
If you’re managing a small business, or are a sole trader, the distinction between business credit and personal credit might seem thin. But understanding the difference is crucial for managing your business’s finances and planning for the future.
Personal Credit – This refers to your creditworthiness based on your financial history. It’s a reflection of how you have managed your personal debts, such as mortgages, personal loans, and credit cards.
Your payment history impacts your personal credit, the amount of debt you owe, the length of your credit history, the types of credit in use, and your recent applications for credit.
Business Credit – This represents how your business has managed its financial obligations, including loans, trade credit, and other business-related debts.
Your business credit can be impacted by payment history with vendors and suppliers, the size and structure of your company, your industry’s risk, and your business’s financial performance.
What are the Key Differences Between Business Credit and Personal Credit?
Separate Entities – Personal credit is tied to an individual, while business credit is tied to a business entity, even if that entity is a sole proprietorship.
Accessibility – Your personal credit reports and scores are private. Access is restricted and requires your permission. Your business credit reports, on the other hand, can often be accessed by potential creditors, suppliers, or even competitors with fewer restrictions.
Liability – Personal debts are your responsibility. For your business debts, liability might be borne by the business entity or by the shareholders, depending on the business structure.
Can your Personal Credit Have an Impact on your Business Credit?
While both types of credit are separate, that doesn’t mean one cannot impact the other.
Application Impact – When you apply for a business credit card, the issuer might check your personal credit history, especially for small businesses or startups. This hard inquiry can cause a small, temporary dip in your personal credit score.
Guarantor Agreement – For some business credit cards, especially when the business is new or doesn’t have an established credit history, the card issuer may require a personal guarantee from you. If your business defaults on its credit card debt, you will be personally responsible, and this default can negatively impact your personal score.
Positive Credit Management – If your business manages its credit card responsibly, making full payments on time, it can improve both the business and your personal credit scores, especially if there’s a guarantor agreement in place.
What Causes Bad Business Credit?
Understanding what leads to bad business credit is crucial when managing a business. Maintaining a positive business credit profile will not only secure financing and favourable interest rates, but also cultivate good relationships with your suppliers, partners, and clients.
Late Payments – The most common cause of bad business credit is the consistent delay or failure to make payments on time. Lenders and credit bureaus monitor how promptly your business meets its financial obligations. If you regularly pay your bills late, especially those linked to loans or credit lines, it can severely damage your credit score.
High Debt Levels – A business with a lot of debt presents a higher risk to potential creditors. If a significant portion of your company’s revenue goes towards debt repayment, there’s a concern about its ability to take on and service new debt, which will hurt your business’s credit score.
Business Bankruptcy – Although bankruptcy might sometimes be the best option for a business in severe financial distress, it will hurt your credit score. It will remain on your business credit report for several years, and limit your ability to secure new financing.
Frequent Borrowing – Regularly applying for new credit lines or loans can be a red flag. Each application can trigger a hard inquiry into the business credit report. Frequent hard inquiries suggest that your company might be desperate for funds and look like you’re in financial instability.
Limited Credit History – Newer businesses might find it challenging to build a positive credit score simply due to a lack of credit history. Without a track record of credit interactions to base a credit score on, lenders might view your business as a higher risk.
Judgments and Liens – Legal actions resulting in judgments or liens against your business will severely affect its credit score. They indicate a history of not meeting your financial obligations and make your business less attractive to creditors.
Inaccuracies on Credit Reports – Sometimes, the causes of bad business credit aren’t directly your fault. Mistakes or outdated information on a credit report can lead to a lower score. Regularly reviewing and disputing inaccuracies is essential.
Mix of Credit – Lenders like to see a mix of credit types, such as trade credit, credit cards, and instalment loans. If you rely solely on one form of credit, it might not maximise your credit score potential.
Closing Credit Accounts – Closing old or unused credit accounts might seem like a prudent move, but it can harm your business credit score by reducing your company’s overall credit limit and increasing your credit utilisation ratio.
Economic Conditions – Economic downturns or specific industry recessions can indirectly lead to bad business credit. Reduced revenues might cause your business to delay payments or default on loans and harm your credit scores.
What is the Impact of a Bad Credit on Your Business?
A good part of your business’s financial health is determined by its creditworthiness. Here are the main consequences of maintaining a poor business credit score.
Difficulty in Securing Financing – The most immediate and apparent consequence is the difficulty faced in securing loans or lines of credit. Financial institutions view businesses with poor credit as high-risk entities. As a result, your business might not be approved for financing, or, if financing is approved, it might come at a higher interest rate.
Increased Operating Costs – With bad credit, your business will face higher interest rates when you do manage to secure loans. This means that you will end up paying more over the life of the loan. These increased financial costs can strain your company’s cash flow and resources, leaving less money for other critical operations and investments.
Supplier and Vendor Relationships – Just as banks check credit scores, suppliers also evaluate the financial health of a business before offering payment terms. With poor credit, you might have to make upfront payments instead of benefiting from extended payment terms. You could also face higher costs for goods and services.
Impact on Expansion and Growth – If you wish to grow and expand, you will need access to capital. Whether it’s for opening a new location, increasing inventory, or launching a new product line, you will inevitably rely on borrowed funds. With bad credit, opportunities to expand might be limited. You might also miss out on potentially lucrative projects, making you lag behind competitors who have better access to resources.
How to Choose a Business Credit Card When You Have Bad Credit?
Even though having bad credit can pose challenges, there are credit cards specifically adapted to this, which means there is a way of rebuilding your business credit score. Here are the things you should be aware of when choosing a business credit card if you have bad credit.
Interest Rates
High vs. Low Rates – Having bad credit means you’ll be subject to higher interest rates than those with stellar credit. Still, some cards offer relatively lower rates for businesses with less-than-perfect credit. Try and go for those.
Variable vs. Fixed Rates – Most credit cards have variable interest rates, meaning they can change based on certain economic factors. Fixed rates, though rare, remain constant.
Annual Fees
Some cards designed for businesses with bad credit charge annual fees. When deciding on a card, try and go for the affordable options. This does not mean you should absolutely go for “free” cards: while no annual fee might sound appealing, the benefits of cards with fees might outweigh their cost, especially if they offer lower interest rates or other advantages.
Reporting to Credit Bureaus
Choose a card that reports to major credit bureaus. This will help improve your credit score if you maintain a good payment record. Regular reporting will fast-track your journey to rebuilding your credit, making future financial transactions easier and potentially less costly.
Rewards and Benefits
Even with bad credit, some business cards offer rewards such as cashback, points, or travel benefits. Try and prioritise what your business needs most. If you travel often, consider a card that offers travel rewards. If cash flow is a concern, cashback might be interesting.
Credit Limit and Terms
Understand the initial credit limit. Some cards designed for businesses with bad credit might have lower initial limits, but these can increase over time with responsible use.
Look at the terms of credit increases. Some cards automatically review your account for possible credit increases after a set number of months of responsible use.
Security Deposits or Collateral Requirements
Some business credit cards for those with bad credit are secured and require a security deposit. This will determine your credit limit. The advantage of secured cards is they often have lower interest rates and fees. Over time, with good behaviour, you might transition to an unsecured card.
Make sure the card issuer provides a clear path for the return of your deposit, like transitioning to an unsecured card or closing the account in good standing.
What are the Best Business Credit Cards for Bad Credit?
| Card Name | Annual Fee | Minimum Credit Limit | Purchases | Cashback | APR | Apply |
|---|---|---|---|---|---|---|
 Capital on Tap Business Credit Card | £0 | £1.000 | 34.3% | 1% Uncapped | 17.74% – 35.99% | Apply |
 Metrobank Business Credit Card | £0 | £500 | 14.9% | ❌ | 14.9% (Variable) | Apply |
 Barclaycard Payments Select | £0 | £1.000 | 27.1% | 1% | 27.1% | Apply |
 NatWest Business Plus | £70 | £500 | 13.9% | 0.5% | 29% | Apply |
 RBS Business Credit Card | £30 (1 year Free) | £500 | 16.9% | 1% | 24.3% | Apply |
Capital on Tap Business Credit Card
Best for – Quick Approval and Credit Building
Features
- Instant Approval if You Have a Fair Credit
- Line of Credit to Help Manage Cash Flow
- Rewards on Eligible Purchases
- Expense Management Tools
- Unlimited Additional Cards
- No annual fee
- 1% Cashback on Every Purchase
- Low variable APRs ranging from 15.2% to 34% variable (Based on Your Credit Profile)
Metrobank Business Credit Card
Best for – Low-Interest Rates and Fee-Free Transactions
Features
- Low Representative APR of 14.9%
- No Annual Fee
- 1% Cashback
- Up to 56 Days of Interest-Free Purchases
- Low Single Interest Rate on all Transactions
- 0% Balance Transfer Fee
- 0% Fee on Non-Sterling Transactions in Europe
- Up to 25 Additional cards for Free
Barclaycard Payments Select
Best For – Cashback Rewards
Features
- Relatively Low Representative APR of 27.1%
- No Annual Fee
- Uncapped 1% Cashback, Paid Monthly
- 2% Cashback on all BT and EE Expenses (Until 29/09/2023)
- Free Access to Accounting Software
- Up to 56 Days of Interest-Free Purchases
- Outstanding Customer Support
NatWest Business Plus Credit Card
Best For – International Transactions
Features
- Low 13.9% Purchase Rate
- Up to 56 Days of Interest-Free Purchases
- 0% Balance Transfer Fee
- 0.5% FLat Cashback (Up to £600 per Month)
- 3% Cashback on Eligible Fuel and Electric Vehicle Charging Stations
- No Foreign Purchase Transaction Fees
- Access to CleadSpend to Manage Your Business Expenses
RBS Business Plus Credit Card
Best For – Managing Irregular Cashflow
Features
- No Annual Fee for 1 Year
- No Annual Fee if You Spend £6.000 per Year
- Up to 56 Days of Interest-Free Purchases
- Low Standard Purchase Rate of 16.9%
- 1% Cashback, Paid Monthly
- Gives Access to ClearSpend, to manage your Cashflow better
- Great Customer Service
How to Improve Your Business Credit Score?
Having bad business credit is not a fatality. With some healthy habits, you can rebuild it quite rapidly. Here are a few pieces of advice.
Pay on Time
Prioritising payments is essential. Try and regularly pay your bills and loans on time. Avoid late payments as much as possible.
If you can, set up automated payments to ensure you never miss a deadline. This will take the guesswork out of paying your bills, especially if you’re juggling multiple responsibilities.
Keep track of payment dates by maintaining an organised payment calendar. This will help you avoid surprises and plan your finances better.
Manage your Debt
High credit card balances will negatively affect your score. If possible, try and keep your balance at 30% or lower of the card’s limit.
If you have multiple loans or credit lines, consider consolidating them into one. This can often result in a lower interest rate and a single, more manageable payment. The cards we mentioned in this guide offer low balance transfer fees, which can be a great way of consolidating several credit lines.
Each time you apply for credit, it can create a “hard” inquiry on your credit report, potentially lowering your score. Space out your credit applications as much as possible.
Ask for Help
If you’re overwhelmed with managing your business debts, get in touch with a reputable credit counselling agency. They provide guidance, budgeting assistance, and debt management plans.
While credit counselling can be helpful, it won’t do the job for you. Make sure you understand and agree with what’s happening. Stay involved in the process and be proactive.
Dispute Errors
Sometimes, your business credit score is hurt by mistakes you’re not responsible for. To make sure this doesn’t have an impact, get your business credit report from major credit bureaus at least once a year and review it so you catch any errors.
If you find any inaccuracies or mistakes, dispute them immediately. Provide the credit bureau with all necessary documentation to back up your claim.
After filing a dispute, follow up to ensure the mistake has been rectified. The credit bureau typically has a window (often 30 days) to investigate and respond. Keep a written trace of everything.
FAQs
What is considered “bad credit”?
A credit score below 580 is usually considered “bad credit.” But the exact threshold might differ depending on the credit bureau and the specific credit card issuer.
Can I still get a business credit card with bad credit?
Yes, there are credit cards designed specifically for businesses with bad credit or limited credit history. These cards might have higher interest rates or fees, but they can help you rebuild your credit with responsible use.
How can a business credit card help improve my credit?
Using a business credit card responsibly, like making payments on time and keeping your balance low, can help rebuild your credit score.
What should I consider when choosing a business credit card for bad credit?
Look at the interest rate, fees, credit limit, reporting to credit bureaus, and any additional benefits or features. Be sure to choose a bank with a good reputation and helpful customer service.
Is a secured business credit card a good option for bad credit?
Yes, secured business credit cards require a cash deposit, which is your credit limit. They can be easier to obtain than unsecured cards and can help you rebuild your credit.
How often will my account activity be reported to credit bureaus?
Most credit card issuers report account activity to credit bureaus monthly. If your goal is to rebuild your credit score, ensure the card you choose reports to all major credit bureaus.
What happens if I default or miss a payment on my business credit card?
Missing a payment or defaulting can have a negative impact on your credit score. It might also trigger late payment fees or raise your card’s interest rate.