How SMBs Rethink Commercial Card Versatility

With commercial credit cards historically viewed as a payment vehicle for businesses to make one-off purchases for the office or while on a business trip, the small business credit card has yet to catch up to adoption volumes seen by other payment methods like direct bank transfers in the B2B payments space.

More recently, commercial card innovators have explored opportunities to gain traction in other spending categories, with accounts payable and supplier acceptance now common targets for B2B FinTechs looking to arm businesses with a way to pay invoices without compromising valuable working capital float.

Rarely, however, is the small business credit card the first thing to come to mind when a company needs a loan. Yet Capital on Tap Head of Growth Alex Miles says, as a tool that connects small- to medium-sized businesses (SMBs) to a line of credit, the small business credit card is more versatile than some business owners might initially believe.

Speaking with PYMNTS, Miles discussed the flexibility that cards can provide to small firms in need of financing for spend beyond small-ticket items, and how the tool can support SMB relief efforts as government aid runs dry.

Opening Access To Capital

In markets like the U.K., in which Capital on Tap is based, demand for small business loans is quite low at the moment, the result of a significant push for government-based financing via programs like the CBILS and Bounce Back Loan initiatives.

But a look into nearby Spain — where Capital on Tap recently launched operations — could offer a glimpse into what small business credit demand may look like once government aid initiatives end.

“The difference with Spain is there is probably not the same extent of government money being flooded into the system at the moment,” said Miles. “There is a lot of government money in the U.K., so outside of those schemes, there’s not a huge demand to borrow at the moment — despite what you might think in a recession.”

In Spain, however, demand for loans and credit facilities is higher, and Miles said he expects a similar trend to follow in the U.K.

It’s in this context that Capital on Tap wields the small business credit card as a tool to connect small businesses to financing. But this wasn’t always the company’s strategy.

According to Miles, Capital on Tap initially offered small businesses its revolving credit facility as an alternative to the bank overdraft. What small businesses would do, however, is draw down on that facility to get cash into their bank accounts, and then use their debit card to make purchases. But when doing so, SMBs would be forced to move a large portion of those funds at once into their accounts, and keep track of each purchase as they used it up.

By connecting that credit facility directly to a spending vehicle, SMBs can more seamlessly make use of the funding without having to manually move money or calculate spend.

Purchasing Choice

Though business trips are all but canceled, Miles noted that small, one-off purchases aren’t the typical transaction for which SMBs use their card.

Rather, the average transaction amount on the commercial card product is about £450, or $565.

“That suggests the card isn’t just for your expenses, or your lunch, or traveling,” said Miles. “Small businesses are buying stock with their card.”

The working capital optimization of a commercial card can be particularly attractive for SMBs to procure inventory, he highlighted. Cards offer the ability to pay a supplier immediately, while a business owner can take up to 56 days to settle the bill interest-free. Meanwhile, that business will sell that inventory, using the proceeds to repay the card.

And while Miles noted that SMBs haven’t raised concerns about a lack of vendor acceptance — one of the biggest challenges for commercial card adoption today — should the issue arise, the credit facility could be drawn down into a bank account to initiate the transaction via another method.

The convenience of access to credit, combined with working capital float and the opportunity to capture revenue-generating rewards, makes the small business credit card an attractive proposition for SMBs.

It’s not a foolproof tool, of course: business owners must pay off their bill in full within 56 days to avoid interest, for example. But as small businesses work to recover themselves — and drive the resiliency of their broader economies — they’ll need access to financing that can support those initiatives, Miles said.