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Alternatives to a business credit card

If you've been looking into business credit cards but you're not sure if they're the right solution for your business, it's worth researching the alternatives too.

There are many alternatives available, some of which are similar to business overdraft alternatives. Some have a focus on flexibility, which is the main appeal of a business credit card, while others are more suitable for larger investments in medium-term growth. Here's a few of the best alternatives to business credit cards:

Revolving credit facilities

Revolving credit facilities work in much the same way as business credit cards, but without the card. They’re lines of credit that provide consistent and pre-approved funding, so you can access working capital when you need it. One key difference is that like most types of working capital finance, when you draw down on the loan, the funding goes into your business bank account.

Like credit cards, you’ll have payment terms that specify how long you can be in debit, and you’ll have a credit limit too — although revolving credit facilities often have higher limits than credit cards do, making it easier to invest in growth plans or cover larger expenses.

Capital On Tap prepaid card

Capital On Tap's prepaid card is designed for firms with minimal or poor credit. If you're not ready for borrowing yet, their alternative debit card can be loaded with your own funds. They'll then assess a few months of your income and outgoings, and potentially be willing to offer you a credit card on that basis.

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Unsecured lending

If you don’t need as much flexibility as a line of credit, unsecured business loans might be a cheaper way of accessing funding. Like credit cards and credit lines, they’re unsecured, but by using a fixed term or amount the interest rates can be significantly lower (7–15% rather than 20% or more).

Of course, the difference with a loan is that you’re guaranteed to pay interest, rather than paying for what you use, but if you were thinking of getting a business credit card for a specific expense, a loan might make more sense.

You can usually borrow more using an unsecured business loan than you’ll have available via a credit card or revolving credit facility. This means they’re better suited to big growth projects, because you get a lump sum at the beginning of the agreement, with fixed repayments over a longer term. For example, instead of having a company credit card limit of £10,000 that can be used month-to-month, you might prefer an unsecured loan of £50,000 repaid over a year.

Merchant cash advances

If you take card payments from customers, a merchant cash advance is another type of unsecured funding that can help for short-term cashflow requirements. They’re a type of revenue loan, which means the provider looks at your recent card transactions and lends an amount based on your recent revenues.

Merchant cash advances are also repaid as a proportion of revenue, which means the payments go up and down with your monthly takings. These repayments are taken at source too, so there’s not much oversight required to stay out of default.

However, like business credit cards and revolving credit facilities, the amount you can borrow is usually fairly small, and the upper limit is set by what you’re currently turning over — so merchant cash advances are arguably more useful for short-term working capital than bigger growth plans.

Invoice finance

If most of your business is paid via invoice, you could use another path to unlocking working capital. Invoice finance allows you to ‘sell’ your unpaid invoices to a lender, who advance you most of the value immediately. This means you get paid faster for completed work or delivered goods, and your cashflow becomes more predictable.

There are a few different types of invoice finance, suitable for various types of business, but what they all have in common is security. If you’re struggling to get a business credit card because your credit rating isn’t good enough, you may be more likely to get funding using invoices because the risk to the lender is lower.

Final thoughts

Business credit cards are a useful line of credit for businesses with lots of small, regular expenses — but they’re not the best choice for longer-term borrowing or bigger investments. They’re also quite hard to secure for smaller businesses, or firms who’ve not been trading long.

The good news is, there’s a range of alternatives available on the market, and we can help you find the one that’s right for your business from over 50 of the UK’s best lenders.

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