What’s the difference between a charge card and a business credit card?

When you’re exploring finance options for your business, the terminology can sometimes be confusing. Charge cards and business credit cards might sound similar, but they function in distinctly different ways that could impact your cash flow and financial flexibility. Knowing the difference between the two can help you make a better decision about the right type of finance for your business.

The difference in repayments

The most important distinction between charge cards and business credit cards boils down to how and when you pay them back.

With a business credit card, you have flexibility in your repayments. You’ll need to pay at least the minimum amount each month (typically a small percentage of your balance), but you can choose to carry the remaining balance forward. Doing so might give you breathing room when cash flow is tight, but any unpaid balance will incur interest charges. 

Charge cards, on the other hand, require full payment each month. There’s no option to spread costs over time, and your entire balance must be cleared by the due date. Miss that payment, and you’ll face penalties rather than standard interest charges. This strict arrangement encourages disciplined spending but offers less flexibility when your business faces unexpected expenses.

For many small business owners, this repayment structure is the deciding factor. Do you need the flexibility to occasionally carry a balance, or would you benefit from the financial discipline that comes with mandatory monthly settlement?

Credit limits and spending power

When it comes to purchasing power, business credit cards and charge cards operate on entirely different systems. Business credit cards come with a fixed credit limit that’s set when you’re approved and is based on your creditworthiness and financial situation. There’s a clear ceiling on what you can spend.

Charge cards are different and typically have no preset spending limit. That doesn’t mean you can spend unlimited amounts however, Instead, your spending capacity flexes based on your payment history, business revenue and relationship with the card provider. 

Remember though, with a charge card, you’ll need to clear whatever you spend each month. So while there’s no fixed ceiling, your actual spending power is ultimately limited by your ability to repay in full after 30 days.

Costs and fees comparison

The cost structures of business credit cards and charge cards reflect their different approaches to business finance.

Interest vs. annual Fees

Credit cards primarily make money through interest charges on carried balances. If you don’t pay in full, you’ll typically face interest rates. Many business credit cards, however, have no annual fee, so if you consistently pay off your balance, your card could effectively cost nothing to maintain.

Charge cards don’t charge interest (since balances can’t be carried forward) but usually impose annual fees instead. Fees can range from modest to substantial for premium options, but they’re a known, fixed cost rather than the variable expense of interest.

Additional charges

Both card types come with a range of possible fees. Late payment penalties are typically more severe with charge cards, while credit cards may charge for cash advances or foreign transactions. Some business credit cards also impose balance transfer fees if you move debt from another card.

The cost structure that works best for your business largely depends on your payment habits. If you always pay in full, a charge card’s annual fee might be worth it for the benefits. If you occasionally need to carry a balance, a credit card with minimal fees but higher interest might be more cost-effective overall.

Eligibility and accessibility

Getting approved for a business charge card typically requires stronger credentials than for a business credit card. Charge card issuers often look for excellent credit scores, as well as established business history and substantial annual revenue. The higher bar reflects the greater risk they take by not setting fixed credit limits.

Business credit cards offer more options across the credit spectrum. While the best rates and rewards still require good credit, there are business credit building cards designed for newer businesses or companies with limited credit history. Some cards are specifically tailored to startups or small operations with modest revenues.

Benefits and protection

Both card types offer benefits beyond simple payment functionality, though they often target different business needs.

Rewards and perks

Business charge cards typically emphasise premium rewards and travel benefits, justifying their annual fees with airport lounge access, concierge services or enhanced points on business expenses.

Business credit cards offer varied reward structures, often with category-specific cashback. For example, Funding Circle’s Cashback business credit card offers an attractive 2% cashback on all business spending for the first six months (up to £2,000), followed by 1% uncapped cashback thereafter. With features like 42 days interest-free credit and no monthly fees, it can help with everyday business spending without high annual costs.

Purchase protection

Private individuals receive purchase protection under Section 75 of the Consumer Credit Act, which makes the card provider jointly liable for purchases between £100 and £30,000 if an issue occurs on a personal credit card. 

Whilst neither business nor charge credit cards qualify for this protection, many providers safeguard your transactions in other ways. 

Extended warranties, purchase insurance or travel coverage–the list goes on. And premium charge cards often include more comprehensive versions of these benefits. Ultimately, the right choice for you depends on your business needs, and situations you’re likely to face. 

Which card is right for your business?

Choosing between these options depends on several factors unique to your business. While we can’t say for sure which option suits your setup best, there are some factors to consider. 

• Cash flow patterns: If your business has consistent, predictable cash flow, a charge card’s requirement to pay in full might be manageable. If you experience seasonal fluctuations or irregular payment cycles, a credit card’s flexibility could be more helpful.
• Spending volume and type: High-volume spenders who pay in full might benefit more from charge card rewards. Businesses with moderate, regular expenses could find credit card cashback more valuable.
• Financial management style: Some business owners prefer the discipline imposed by charge cards, while others value the flexibility of credit cards for managing working capital.
• Growth stage: Established businesses might leverage charge cards for their higher spending capacity, while growing businesses, such as startups and SMEs, may find credit card accessibility more practical.

For example, a seasonal business like a holiday retail shop might benefit from a credit card to manage inventory purchases during slower months. Meanwhile, a consulting firm with steady monthly revenue and significant travel expenses might prefer a premium charge card with travel benefits and higher spending capacity.

Making the right financial choice

The difference between charge cards and business credit cards is about finding the  right fit for your business. Consider not just your current situation but your future growth plans when making this choice. Whichever option you select, both can help build your business credit profile while providing better expense tracking than personal cards or cash payments.

Thinking about a business credit card? Find out more about Funding Circle’s Cashback business credit card and start getting something back on your purchases. 

While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.