Cash Flow Challenges for Small Businesses in 2025

As we move into 2025, small businesses are still grappling with significant cash flow challenges. A growing number of entrepreneurs are increasingly turning to credit cards as a crucial financial lifeline. Recent data indicates that around one in five small businesses now rely on credit cards to effectively manage day-to-day expenses, cover payroll, and invest in growth opportunities that would otherwise be out of reach.

While utilizing credit cards can provide flexibility and immediate access to funds, it raises important concerns about long-term sustainability and potential financial risks. It’s essential for small and medium-sized enterprises (SMEs) to exercise caution and strategy when adopting this approach to financing.

Making Informed Decisions with Business Credit Cards

With credit cards becoming a popular financial tool, how can SMEs ensure they are making informed choices to avoid pitfalls? Experts from Uswitch business credit card services offer invaluable advice on using these financial instruments wisely, enabling businesses to mitigate potential risks while harnessing the benefits of credit card usage.

Statistics on Business Credit Card Use

• Approximately 20% of SMEs utilize credit cards to manage cash flow.[1]
• 94% of small businesses manage to pay off their credit card balances in full each month.[2]
• Only 14% of SMEs that use finance express concerns about their ability to repay their borrowing.[3]
• Uswitch experts provide practical tips for business owners on leveraging credit cards for growth while avoiding unsustainable debt levels.

The trend of one in five small businesses relying on credit cards underscores a growing pattern among entrepreneurs facing unpredictable income streams and escalating operational costs. Although credit cards can provide immediate financial relief and flexibility, lack of a sound repayment strategy can quickly lead to high-interest debt burdens, jeopardizing financial stability.

Fortunately, there is good news: the Uswitch team of credit card experts has compiled the latest statistics and insights into the use of business credit cards within the UK, elucidating how a strategic approach can make credit cards an effective and sustainable tool for small business growth.

Business Credit Card Adoption and Growth Trends

In the third quarter of 2023, approximately one in five small and medium-sized enterprises (SMEs) in the UK turned to business credit cards as a reliable source of external finance.[4]

The British Business Bank unveiled in its annual tracker that the usage of external financing methods—including credit cards, bank loans, and overdrafts—has surged by 10%, rising from 36% to 46% since reaching post-Covid lows. This increase was predominantly driven by a notable uptick in the utilization of credit cards, while the demand for traditional bank loans experienced a decline.[5]

“For SMEs, credit cards can often serve as a more practical financing option than traditional bank loans. They provide quicker access to funds with more flexible repayment terms and require less paperwork. In contrast, bank loans may entail stricter criteria for qualification, extended processing times, and terms that frequently don’t align with a small business’s cash flow needs,” explains Uswitch SME expert Andy Elder.

Spending Patterns and Utilization Trends

The average credit limit on a business credit card is generally higher compared to personal credit cards. SMEs with average financial standing can typically expect limits that range from £1,000 to £10,000. However, businesses demonstrating strong financial reliability can be eligible for credit limits that are five times greater or more.

This highlights the essential need for budgeting tools and effective spending limits, particularly for employee usage, to actively manage financial outflows and avoid unexpected expenditures.

Common Uses of Business Credit Cards

Category	Common Uses
Day-to-Day Operational Expenses	Travel and accommodation (flights, hotels, trains) Fuel for company vehicles Office supplies (stationery, tech accessories) Software subscriptions (Microsoft 365, Adobe, etc.)
Business Development	Online advertising (Google Ads, Facebook, LinkedIn) Client entertainment (meals, events) Conferences and staff training
Capital or Equipment Purchases	Technology (laptops, phones, tablets) Machinery or tools for operations
Cash Flow Management	Paying suppliers or contractors during lean periods Covering unexpected costs or managing seasonal slowdowns

A significant portion of small businesses in the UK pay off their business credit card balances in full, with:

• Micro Companies (fewer than 10 employees) — roughly 84% clear their credit card balances monthly.
• Small Businesses (10-49 employees) — approximately 94% pay their balances fully every month.

These trends point to the conclusion that a considerable number of small businesses are successfully managing their credit card debts, positioning these financial tools as sustainable resources for growth for the majority.

Challenges and Risks in Using Business Credit Cards

However, several challenges and risks are undeniably present in the current economic landscape:

With rising interest rates affecting many businesses, about 14% of SMEs reported concerns regarding their ability to repay their existing borrowings, equating to around 5% of all SMEs in the sector.[9] This figure is not overwhelmingly significant, which suggests that most SMEs feel they have a sound grip on their current borrowing levels. Business owners must avoid the temptation to over-borrow and practice careful budgeting to keep their debt manageable.

The Consequences of Late Payments on Credit Scores

Although late payments can adversely impact business credit scores, SMEs that stay diligent about their borrowing practices can effectively avoid late fees, thereby protecting their credit profiles and maintaining positive standing.

Choosing the Best Business Credit Card

To help make informed decisions, Uswitch provides comprehensive comparisons of various business credit card offerings tailored to meet the needs of small businesses. Understanding the differences among these cards can significantly affect your business’s financial health.

Additionally, Andy Elder, Uswitch’s business credit card expert, outlines essential strategies for small businesses to leverage credit cards constructively while circumventing debt traps:

1. Select the Right Card for Your Business Needs

“Not all business credit cards are created equal. Seek cards that align with your specific spending habits — whether you need cashback on office supplies or points for business travel. Cards offering no annual fees and flexible repayment options can offer significant advantages.”

2. Use 0% Introductory APR Offers Wisely

“Many business credit cards include a 0% APR introductory period for purchases or balance transfers. This can be an astute way to finance short-term investments—such as new equipment or marketing campaigns—without accumulating interest immediately. Be sure to strategize to pay off the balance before the introductory period concludes.”

3. Timely Payments are Essential

“Neglecting to make payments or only covering the minimum amount can lead to excessive interest charges and hurt your business credit score. To stay organized, set up automatic payments or reminders on your calendar, aiming to pay your balance in full each month whenever feasible.”

4. Keep Business and Personal Finances Separate

“Using a dedicated business credit card allows for better expense organization, simplifies bookkeeping, and aids in building your business credit profile. It also safeguards your personal credit in the event your business experiences financial difficulties.”

5. Monitor Spending and Enforce Limits

“Utilize budgeting tools or credit card apps to keep a real-time track of expenses. Many business credit cards enable you to set spending limits for employee cards, which helps you maintain budgetary discipline and avoid surprises.”

6. Reinvest Rewards Earned

“Leverage points, miles, or cashback earned to offset future business costs such as travel, supplies, or advertising. Consider rewards as a way to optimize every penny and facilitate reinvestment in growth initiatives.”

7. Aim for a Strong Business Credit Score

“Responsible credit card usage contributes to building a solid credit history, which can unlock better financing options in the future—such as business loans with favorable interest rates.”

Leveraging AI legalese decoder for Clarity

To navigate the complexities associated with credit agreements and financial documents, small businesses can benefit significantly from the AI legalese decoder. This innovative tool interprets legal jargon into plain language, allowing business owners to make informed decisions without being bogged down by confusing terms and conditions. By using the AI legalese decoder, SMEs can enhance their understanding of credit agreements, helping them to avoid unfavorable terms and ensuring they utilize credit cards in a way that supports their growth rather than hinders it.

Final Thoughts

As emphasized throughout this discussion, small businesses can successfully leverage credit cards for cash flow maintenance and growth, provided they follow sound financial practices. With proper planning, strategic decisions, and the assistance of tools like the AI legalese decoder, business owners can navigate the complexities of credit card use and emerge stronger in the face of cash flow challenges.

Resources:

Data reflects the most recent information available up to March 2025. Not all data has been collected from the same study – all sources are cited below.

[1] https://www.bva-bdrc.com/wp-content/uploads/2024/03/BVABDRC_SME_FM_Q423_Full_Report.pdf

[2] https://www.comparebanks.co.uk/resources/business-credit-card-statistics/

[3] https://www.merchantsavvy.co.uk/business-finance-statistics/

[4] https://www.bva-bdrc.com/wp-content/uploads/2024/03/BVABDRC_SME_FM_Q423_Full_Report.pdf

[5]https://www.british-business-bank.co.uk/about/research-and-publications/small-business-equity-tracker-2024

[6]https://www.british-business-bank.co.uk/about/research-and-publications/small-business-finance-markets-report-2024

[7]https://www.ukfinance.org.uk/system/files/2024-06/Business%20Finance%20Review%202024%20Q1.pdf

[8]https://www.merchantsavvy.co.uk/business-finance-statistics/