Sole tradership is empowering. It grants you lots of freedom over how you run your business. One downside to all this freedom, however, is that you may have no separation between your personal and business finances. 

A popular way to help split your finances is to apply for a business credit card, which allows you to make business-related purchases independently from your main bank account. Most business cards also come with handy offers catered to the needs of small businesses, such as cashback and discounts.  

Despite the advantages on offer, many self-employed people wrongly assume they can’t get a business credit card. Anyone who owns a business, including sole traders, can apply for a business credit card. The only thing to note is that sole traders may face tighter approval criteria than a limited company director. 

If you’re interested in getting a credit card as a sole trader, keep reading as we discuss the advantages and disadvantages, application criteria and how to best utilise a business credit card to strengthen your company’s financial future. 

The importance of business credit for sole traders

Getting a business credit card isn’t just a way to spread the cost of payments across an agreed-upon term. As a sole trader, the biggest advantage to having a business card is one we already mentioned when we introduced this article—being able to separate finances by making all business-related purchases through the card. 

In many cases, sole traders choose to have a business bank account, too. So, the idea of separating your finances may be a little redundant. Unlike a bank account, however, a business credit card carries further advantages: 

• Instant capital: Most sole traders rely on customers paying them on time to have capital in the bank. A business credit card gives you access to a set amount of credit whenever needed, alleviating potential cash flow problems before they can start. 
• Easier expensing: Rather than having to scour through your own personal account and mark every business transaction down for expenses, you can use your business credit card and track expenses through it. 
• Improved credit history: Once you’ve successfully applied for a business card, provided you keep up with repayments and use it responsibly, you’ll build your credit rating and will subsequently face better chances of acceptance when applying for other types of credit like business loans. 
• Business rewards: Many providers offer business-specific offers with their business credit cards. These come in several different forms, from flat one-time offers to cashback and other perks only available to business customers. 
• Control over employee spending: Sole traders can have employees, and those employees may need to make business-related purchases as part of their roles. Using a business credit card helps ensure all of their spending is tracked and expensed accurately.  

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Eligibility and requirements for self-employed credit cards

Though sole traders can successfully apply for a business credit card, lenders tend to have stricter approval criteria when issuing cards to limited companies. To help maximise your chances of success, prepare all of the necessary documentation in advance and even spruce up your business plan in case you need to convince lenders of your creditworthiness. 

Due to how sole traders operate, your personal and business finances are linked, so lenders have different expectations you need to meet. To be eligible for a business credit card, you’ll need to own a business in the UK, meet minimum age requirements (often 18 or 21) and earn over a minimum limit (if applicable). To demonstrate that you meet these requirements, most lenders ask for documentation such as:

• Proof of income: Lenders expect to see records relating to your business income. This usually means bank statements and any other accounts-related documents. Many will also have a minimum income requirement for credit cards. 
• Business information: Lenders will ask you about when you started trading, as well as any other information about your business. Sole traders aren’t listed on Companies House or registered in the same way as a limited company, so you’ll need to show proof of your sole trader status via your trading name and UTR (Unique Taxpayer Reference) 
• Personal information: Lenders will ask for your name, address and date of birth as standard. Some may request additional information if you’ve moved addresses frequently or have different addresses for your home and business. 
• Personal credit history: Unlike other types of business, which have a credit history specific to the business, sole traders are instead evaluated based on their personal credit files. 
• Personal asset information: Sole traders are personally responsible for their business debts, so some lenders want to know more about their assets, such as their homes, in case they default and have to pursue repossession. 

All a lender is truly concerned about is whether you will make the repayments on any potential loan. When making a business credit card decision, the lender assesses your financial performance to determine creditworthiness – so if you’ve got patchy income records, you may struggle to secure a card. There are, however, a few ways you can overcome this hesitation: 

• Lower your credit expectations: Apply for a smaller credit limit or accept a card with a higher interest rate to use as a way to build your credit and stabilise your income. 
• Select a card with higher fees: Most business cards have some form of fee structure built in, but those with higher charges are often more forgiving of applicants with poorer credit scores. 
• Contact the lender directly: In an age of automatic decisions and online forms, you may be able to talk to a lender and explain your business and goals. In some cases, they can offer you an alternative credit facility. 

Once you are successful, your responsibilities don’t end. As a sole trader using a business credit card, you need to track your spending and record your expenses so that you can report them accurately to HMRC in your self-assessment. 

Downsides of sole trader credit cards

Having a business credit card is beneficial for many reasons, but like any financing arrangement, there are drawbacks you need to be aware of before making a decision. The biggest risk is that you default on your credit and fall into debt, which will sink your credit rating and can lead to bankruptcy. Other than that, there are a few other pitfalls to watch out for:

Interest rates: When negotiating a credit card agreement, make sure you understand the interest rates offered. Some providers have variable rates that can quickly shoot up if you fail to make repayments. 

Card fees: AA sole trader with a business credit card usually pays an annual fee for using it, which will be described in the terms and conditions of any agreement. Make sure you know what that fee is and when it is billed before you take on the card. You should also be aware of other fees, such as late repayment charges, which also impact your credit score.

Fewer protections: consumer credit cards are protected by Section 75. Business credit cards fall outside of this, though some providers include additional protections to help safeguard customers.

Choosing the right credit card for your sole trader business

When looking for a sole trader business credit card, you need to analyse your requirements and draw up a shortlist based on providers who can most closely meet your needs. 

To get started, you can use well-known comparison tools like Uswitch to get an at-a-glance view of providers and card offers. With a wide selection of options available, the best way to narrow things down is to run through the following steps:

1. Consider your requirements: Why do you need a business card? What credit limit would you like to apply for? Will you need multiple cards for your employees, or a single one? 
2. Assess card providers: Look at the providers you’re interested in and browse reviews from other business customers. Get a feel for the lender themselves before you delve into the cards on offer.
3. Look at the card features: Scrutinise what each credit card offers in terms of interest rates and fees, but also added benefits such as rewards or added technology such as expense tracking tools. 

Once you’ve followed these steps, you’ll better understand which company and cards are relevant to you. We’d encourage you to compare cards against one another by filling out the table below:

Managing credit and debt as a sole trader

Owning a business credit card as a sole trader is similar to owning a personal one, as your finances are still ultimately viewed in the same way. Even though you can separate spending and make business purchases on your card, any negative impact on your credit history will go against your personal file. 

That’s why it’s essential to manage your debt effectively. The best way to use a business credit card is to always repay the balance in full or, at the very least, keep up with minimum repayments. Regular repayments will also help build your credit score, which can, in turn unlock better offers if you choose to take out another card in future. 

To keep track of your spending, use CrunchOne. Our tool helps sole traders keep track of all business transactions and can deliver instant insight into your financial situation – so you can see what’s coming in and out and spot any potential issues with repaying your debt ahead of the deadline. 

Try out CrunchOne today and see how it can help you better track, manage and report on your sole trader business’ finances and tax obligations. 

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FAQs and concerns

Can a sole trader use a personal credit card?

Yes, sole traders can use personal credit cards for business spending. It is important to track the purchase and note it as a business expense for tax purposes, as well as secure, accurate receipts. However, business cards usually offer more targeted benefits specific to sole traders. 

Can I get a credit card self-employed? 

Yes, all types of self-employment can qualify for credit cards, provided your business is deemed safe and creditworthy. Lenders often prefer limited companies to sole traders so approval criteria may be slightly higher. 

Can sole traders take credit card payments?

Sole traders can take card payments just like any other business owner. To do so, you’ll need to set up a merchant account to make payments via debit and credit card. However, be careful if you’ve got your credit debts in place. A chargeback or fraud issue can see a customer’s funds withdrawn from your bank, leaving you unable to repay your own debts unless you have capital in reserve.