For small businesses, getting a credit card can be surprisingly difficult.

For example, in 2021, when small businesses needed to overcome a financial challenge, more of them used personal funds than received some form of financing. Additionally, 70% of small-business owners said that one of their most difficult tasks has been getting the financing they need.

This represents an opportunity for software platforms to help their customers get access to the funds they need. In fact, companies that build financial services into their products have several strategic advantages over traditional banks.

First, software companies can leverage an existing relationship with the customer. That’s significant, given that nearly 70% of small businesses who apply for a credit card choose to do so with a lender with whom they already have a relationship. While these relationships have traditionally been with brick-and-mortar banks, the shift to embedded financial services means that software companies can expect similarly significant adoption from existing customers.

Second, because of their existing business relationship, software companies are in a better position to underwrite their customers. Software companies can combine financial transaction data with revenue, month-over-month growth, cohort retention, burn, and other proprietary data points to deliver their customer the right offer, at the right price, in the exact moment of need.

Imagine a business in which inventory is low, cash is tight, and routine expenses are coming due. At the same time, its growth is steadily increasing and repeat customers are purchasing more frequently. While a bank doesn’t have visibility into those proprietary data, a software platform does (e.g., Shopify, Invoice2go). Because of this, the software company is uniquely positioned to offer credit, right in the same platform the business owner is already using.

Using more complete data than traditional banks, software companies can underwrite better, offer more tailored terms, identify more affordable capital, and provide lending solutions in situations where traditional banks cannot. This could go a long way toward helping the 1/3rd of small businesses whose applications for credit were denied in 2021.

Introducing business charge cards

Today, we’re excited to announce that we are now providing business charge card issuing to help companies build better financial services for businesses.

Nearly half of all card payments are made on credit cards. For companies building financial services, charge cards (including physical and virtual cards) are a natural first step in offering credit accessed through a card. This creates a new opportunity to deliver innovative products, generate more revenue, and build customer loyalty.

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Now, with a single API call, you can have a custom-designed, fully programmable charge card for businesses delivered straight to your customer’s door.

To accelerate the building process and minimize fraud, card printing and compliance are streamlined by Unit, behind the scenes. Once the business charge card is activated and in use, transactions are available via API and in the Dashboard.

Like our ledger, our charge card product is built from scratch; that means it works seamlessly with all the other features available on our platform. For example, programmatic authorization of transactions, rewards, limits, customer segmentation, tagging, and card management all work exactly the same way on charge cards as they do on debit cards—no additional work required.

In addition to being easy to implement and fully featured, charge cards provide a mechanism to easily capture improved economics for interchange revenue. A card swipe transaction will typically yield, on average, 0.5% more in interchange revenue when done with a credit card compared to a debit card.

Charge cards require the entire balance to be repaid in full every month and there are no financing fees allowed. For now, charge cards will be offered to businesses only. Over time, we plan to enable revolving credit, credit building capabilities, financing fees, the ability to issue credit cards to consumers, and much more.

Charge cards create a more complete solution

For Toolbox, the ability to combine charge cards with other financial services and insights creates a more complete solution.

Toolbox is building financial services for the construction and skilled trades industry. They combine expense tracking, financing, and charge cards to help businesses access the funds they need to grow and scale. 

“Our team has worked with or explored several providers over the past year and a half. Unit’s platform and team has really impressed us and we’re very excited to be launching our charge card with them. Our customer base depends on the working capital from the charge cards in order to grow their business, without using personal finances or guarantees. We’re excited to continue building additional features for our users now that our core infrastructure is solved through Unit."

Wil Eyi, Co-founder & CEO, Toolbox

What’s the difference between charge cards and credit cards?

At this point, you may be asking, “What’s a charge card? How do charge cards work?”

A charge card is a kind of credit card; it allows your customers to pay with a revolving line of credit directly at the point of sale. What’s different about charge cards is that they can’t carry a revolving balance; in other words, they must be paid off completely at the end of every statement period (typically monthly). 

As a result, your customers won’t pay interest on their charge cards. Charge cards also impact credit scores differently. They don’t have a preset spending limit, which means that credit scoring models can’t calculate your customer’s ratio of available credit to amount spent (known as their credit utilization score). Your customer could spend as much as they wanted in a given month with a charge card, and it won’t be reflected in their utilization score.

Get started

If you’d like to learn more about lending read our lending guide, and to learn more about charge cards specifically please read our charge card documentation, and technical guide. If you’re interested in building charge cards into your product please contact us or reach out to your success manager.