How do interest rates work for business credit cards?

Business credit cards can quickly build up interest when you’re not keeping an eye on spending. Most business owners know the basics, be it missing a payment or paying some form of interest, but the details often get lost in the day-to-day rush. Having a feel for exactly when these charges come into play and how they’re calculated can give you a better idea of what you’re signing up for and even save you money over the course of the year. 

What is an interest rate?

An interest rate tells you the cost of borrowing money and is shown as a percentage of the amount you’ve borrowed. When you use a business credit card, you can be charged different interest rates for purchases, balance transfers, money transfers and cash transactions. 

With business credit cards, you’ll typically see the Annual Percentage Rate (APR) figure. This includes the interest rate plus any mandatory charges and gives you a clearer picture of the overall cost. The rate you’re offered also depends on your business’s credit history and financial situation.

When do interest rates come into play?

Business credit cards typically offer an interest-free period, often around 40 days on new purchases (though some are longer). The grace period starts from the date of purchase until your payment due date. Many cards offer some form of an interest-free grace period, but only if you pay your balance in full each month. If you don’t, interest will be applied to the outstanding amount until it’s fully repaid. 

It’s worth noting that this works a little differently for cash withdrawals. If you make a cash withdrawal (also known as cash advances), interest is regularly applied from the date of the transaction, right up until the date it’s paid in full, even if you clear your balance that month. 

How business credit card interest is calculated

Most business credit cards use variable interest rates that change in line with the Bank of England base rate. Your interest rate can go up or down over time, affecting how much you pay for borrowing. 

When working out how much interest you’ll pay, card providers often use the ‘average daily balance’ method:

• They calculate your balance at the end of each day
• These daily balances are added up and divided by the number of days in your billing cycle
• The amount is then multiplied by your monthly interest rate (your APR divided by 12)

Different types of interest rates on business credit cards

Not all interest rates are created equal on your business credit card. Depending on how you use the card, you’ll come across a few different rates that can impact what you pay for borrowing. Knowing the inns and outs of these will help you make smarter decisions about when and how to use your card.

Purchase APR

The most common type of interest rate, the purchase APR applies to any unpaid purchase balances on your card. Most business credit cards have variable purchase rates that change in line with the Bank of England base rate. The rate only kicks in if you don’t pay your balance in full by the due date.

Cash advance APR

A cash advance APR applies when you withdraw cash using your business credit card. Unlike regular purchases, interest on cash advances typically start accruing from the day of the transaction, up until the date it’s paid in full, even if you clear your overall balance that month. Cash advance rates are usually higher than purchase rates, which makes them one of the most expensive ways to access funds.

Balance transfer APR

This rate applies when moving existing debt from one card to another. Balance transfers can help your business cut down on interest costs and clear credit card debt more quickly, particularly if the new card has a lower rate. That said, unlike personal cards, 0% balance transfer offers are uncommon in the UK business credit card market.

Promotional rates

Some business credit cards offer temporary lower rates to attract new customers. These promotional rates – sometimes as low as 0% – give your business extra breathing room to manage expenses without accruing interest during the introductory period. Just remember that once the introductory period ends, any remaining balance will start accruing interest at the card’s standard rate, which is typically much higher.

Alternatives to business credit cards with interest rates

If you’re looking to avoid interest charges altogether while still maintaining flexibility in your business payments, there are alternatives worth considering. Credit cards can be useful for many businesses, but they aren’t always the most cost-effective way to manage your cash flow.

FlexiPay offers a flexible alternative without the interest

Unlike traditional business credit cards that charge variable interest rates, FlexiPay from Funding Circle works differently. Instead of charging interest on outstanding balances, FlexiPay uses a simple flat fee structure per transaction. You know exactly what you’re paying upfront, with no surprises later.

The difference is in the transparency and control it offers. While business credit cards can quickly accumulate compound interest if balances aren’t paid in full, FlexiPay gives you the freedom to choose your repayment schedule – over 1, 3, 6, 9 or 12 months – without any interest charges at all.

How does FlexiPay compare to traditional business credit cards?

As an alternative to interest-bearing credit cards, FlexiPay features:

1. No interest charges. There’s a single, transparent fee per transaction rather than ongoing compound interest
2. Flexible repayment terms. Choose how you repay
3. Multiple payment options. Pay by card, make cash transfers or send funds directly to your business bank account
4. No annual fees. Unlike many business credit cards that charge yearly fees for the privilege of using them
5. High credit limits. With limits up to £250,000 for eligible businesses
6. No impact on credit score when checking eligibility. For limited companies and LLPs

The flexibility of FlexiPay may be particularly helpful if your business needs to manage cash flow, pay suppliers before customer payments arrive or take advantage of bulk purchase discounts without the worry of escalating interest charges.

If your business regularly carries balances on credit cards, the predictable fee structure of alternatives like FlexiPay can make financial planning significantly easier and help you avoid the complexity of variable interest rates as well compound interest calculations.

Learn more about FlexiPay

Clearer spending, smarter saving

Knowing exactly how business credit card interest works can mean the difference between predictable spending and hidden costs. Whether you’re comfortable managing rates or prefer simpler alternatives like FlexiPay, clarity around charges will help your business avoid surprises, all while keeping more money where it matters most.

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.