Business Debit Card vs Credit Card

A business debit card is linked to your business current account and only lets you spend money you already have. A business credit card gives you a separate line of credit to spend now and repay later, and often comes with rewards. Most small businesses can benefit from having both.

How you pay for business costs affects your cash flow and your credit score. Whether you're weighing up a business debit card against a business credit card, or trying to work out whether a debit card for your business account is even the right starting point, here's what you need to know.

What's the difference between a business debit card and a credit card?

Here's how they compare at a glance:

* The Capital on Tap Business Credit Card offers a Preloading feature, meaning you can top your card up with your own money, so you can spend beyond your credit limit. 

Understanding business debit cards

A business debit card is linked to your business current account. When you use it, you're spending your own money: the amount comes straight out of your account balance. If there isn't enough in the account, the payment is declined, unless you have an agreed overdraft, which lets your balance dip below zero but usually comes with a fee and interest on the amount you're overdrawn.

It's usually issued automatically as soon as you open the account, which is why it's typically the first payment card a small business gets. It gives you a convenient way to manage expenses, make purchases, and access funds.

Getting a debit card for your business account

Because it's tied to a business current account, you can't get a debit card until you've opened one, whether you're a sole trader or a limited company. A business credit card doesn't usually have that requirement: most providers, including Capital on Tap, let you apply for a credit card without already banking with them, so you're not locked out just because you haven't opened a business account elsewhere.

Business debit cards: pros and cons

Pros

• No debt: You can only spend what's already in your account.

• Easier to get: Fewer requirements than a credit card, since it's issued alongside your business current account.

• Real-time visibility: Transactions come straight out of your account, so your cash flow is always up to date.

Cons

• No credit facility: No buffer for urgent or unplanned costs.

• Rarely any rewards: Debit cards don’t usually offer spending rewards or cashback. 

• Doesn't build credit: Using a debit card doesn't help establish or improve your business credit score.

Understanding business credit cards

A business credit card, such as a Capital on Tap Business Credit Card, works differently: it's a separate credit facility, not something linked to your current account or debit card. You can buy things immediately, up to a pre-arranged limit, and pay for them later. Credit cards have a maximum borrowing limit, which is the highest amount you can use at any one time, though some providers offer ways around this: Capital on Tap's Preloading feature, for example, lets you top up the card with your own money so you can spend beyond your credit limit when you need to.

You can repay what you've borrowed in full at the end of your billing period, or make a minimum repayment. Pay in full and you won't pay any interest; make only the minimum repayment and you'll be charged interest on the remaining balance.

There are different types of credit cards, including:

• Business credit cards: Specifically designed for business users, not to be used for personal purchases

• Personal credit cards: Designed for personal use

• 0% purchase credit cards: Help spread the cost of items interest-free for a set period

• Balance transfer credit cards: Let you move your balance to another card to save money

• Credit builder cards: Often aimed at those who need help building their credit score

Business credit cards: pros and cons

Pros

• Cashback and rewards: Many business credit cards offer cashback or rewards on everyday spending, which adds up over time, though caps and terms vary by provider.

• Build credit: Using a business credit card allows you to build your business credit score if you use it responsibly.

• Protection: You get liability protection against fraudulent or unauthorised transactions made using your credit card.

Cons

• Qualifying: Not all businesses will qualify for a business credit card.

• Interest charges: Interest rates on unpaid balances can impact your bottom line.

• Risk of debt: It's easy to overspend since you're using borrowed money, unlike a debit card where you're limited to what's in your account.

When is it better to use a business credit card?

• Larger purchases: When your business needs to make substantial purchases or investments, a business credit card can provide the necessary flexibility. The predefined credit limit allows you to manage significant expenses without depleting your cash reserves. If your business credit card offers rewards, you could also earn points or cashback on this purchase.

• International transactions: If your business conducts international transactions or frequently deals with foreign currencies, many business credit cards offer favourable currency conversion rates, which can be a significant advantage, especially if it doesn't charge foreign transaction fees.

• Purchase protection: When you're looking for extra purchase protection, a business credit card can be invaluable. Many credit cards offer benefits like extended warranties, purchase insurance, and fraud protection, which can safeguard your business against unforeseen issues with purchased items.

When is it better to use a business debit card?

• Budget control: If your priority is to maintain strict control over your business's spending and avoid accumulating debt, a business debit card is ideal. It restricts your spending to the funds available in your linked bank account, preventing overspending.

• ATM withdrawals: Business debit cards provide easy access to cash through ATMs, making them convenient for businesses that require frequent cash transactions or need to pay vendors or employees in cash.

• Sole trader: Some credit card providers, including Capital on Tap, only lend to limited companies and LLPs, not sole traders. If that's you, a debit card linked to your business account may be the more practical option, unless you find a credit card provider that does accept sole traders.

The bottom line

Whether a credit card is right for you depends on how you manage your budget and cash flow. If you want to build your credit score or need more flexibility, a credit card is the better fit, but only if you can pay it off and avoid carrying a balance. Just make sure you know how to use a business credit card effectively so you get the rewards without racking up debt. If you'd rather use your own cash and don't care about rewards, stick with a debit card.

Having both gives you options. Use a credit card for regular payments, so your bills are covered without draining your bank account, and your spending is easy to track. If you're carrying a balance on your credit card, use your debit card for everyday spending instead to avoid racking up more interest.

If a credit card is the right call, the Capital on Tap Business Credit Card offers up to £250,000 credit, unlimited employee cards, and unlimited 1% cashback. Apply today and get a decision in as little as 2 minutes, without impacting your credit score.

Frequently asked questions

This does not constitute financial advice. If you wish to understand the suitability of a credit or debit card for your business, contact your financial advisor or accountant.