When selecting a credit card to fund your small business, it is important not to succumb to the cliché. While it’s said that, ‘it’s not personal, it’s just business,’ a personal touch is often the best thing for the financial health of a small business. In fact, such an assertion is proven valid both by the new credit card law (CARD Act) and the inherent similarities between business and personal credit card liability.
Among the many credit card protections instituted by the CARD Act are prohibitions against credit card companies changing interest rates on personal credit cards within the first year or applying increased interest rates to current balances unless delinquency reaches 60 days.
Unfortunately, however, these protections do not apply to business credit cards, meaning that maintaining a balance on a business card is inherently risky. If a small business owner holds debt and the credit card company decides to raise interest rates—as happens often—the debt becomes more costly to pay down. Thus, the CARD Act has created a loophole whereby small business owners should actually use personal credit cards in place of business credit cards for purchases that will cause them to carry a balance on a monthly basis. A personal card helps achieve the stability and predictability of small business cash flow that is especially necessary in the current economic climate.
Similarly, contrary to what many people think, small business credit cards have no liability advantage over personal credit cards. With both types of cards any debt is the responsibility of the individual cardholder. A small business owner is not personally safeguarded by his company; as perhaps opposed to medium or large businesses, an owner and his or her small business are not distinct entities in the eyes of the credit card company. A good indicator of this is that most business credit card applications require the Social Security Numbers of small business owners. Thus, no liability difference exists to counteract the benefit of interest rate predictability that personal credit cards offer.
However, small business credit cards do have other advantages that make their use recommended for any purchasing that will not lead to a balance at the end of each month. First, such credit cards allow holders the freedom to give employees cards with individual, customizable limits. This affords an owner operations flexibility and protection as well as the ability to accrue rewards from employee purchasing. In addition, business credit cards are far more apt than personal credit cards at tracking business spending.
Overall, business credit cards hold their name for a reason, yet litigious changes make their use at times unwise. Both serve specific purposes, and using them in combination can lower the cost of your company’s debt while also allowing for certain business-specific capabilities. Ultimately, remember that any credit card debt should be held on a personal credit card while any other purchases should be made with a business credit card and you will be on your way to maximizing your company’s potential.
This guest post comes from Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card offers.