This article is by Odysseas Papadimitriou, CEO of Card Hub, a leading marketplace for comparing business credit cards and consumer credit cards.
Imagine making a number of important purchasing decisions on your small business’s credit card with your current interest rate in mind, only to receive a notice from your credit card company shortly thereafter, informing you that your rate had been doubled for no reason. Seems like a money-wasting nightmare, but it’s actually the case for why small business owners must garner debt stability in the new business credit card environment.
Somewhere around 80% of small businesses use credit cards for funding purposes, according to a National Small Business Association survey, and while debt stability has been historically unattainable, a credit card law put into effect in February 2010 (the CARD Act) made it possible for those using personal credit cards. The law prohibits credit card companies from changing a cardholder’s interest rate for existing debt unless he is 60 or more days delinquent on payment.
Ok, but why should small business owners care if personal credit card users are the only ones who benefit from the legislation? For one simple reason: According to a Card Hub Business Credit Card Study all of the major credit card issuers consider small business owners to be personally liable for business
credit card use and send information about this use to their personal credit reports, which means it affects their personal credit scores. In other words, there’s no reason not to use a personal credit card for company spending.
However, there are indeed reasons to continue using business credit cards: enhanced expense tracking capabilities, the ability to set custom credit limits for employee cards, centralized company rewards earning, and more. So where does that leave you? Using a rewards business credit card for everyday expenses that are paid for in full within a single billing period and a personal 0% credit card for expenses that result in a revolving monthly balance.
Aside from garnering debt stability as well as a business credit card’s unique features, there are a number of reasons why a credit card strategy like the one laid out above is beneficial. First of all, it gets you the best possible overall credit card terms. There’s no one credit card that provides both the best rewards and the lowest rates, but those things are certainly attainable if you use two different cards. Secondly, it prevents you from losing money on interest as a result of not having a grace period for new purchases. While interest isn’t normally assessed on a credit card until after your payment is due, when
you’re revolving a balance, new purchases begin accruing interest immediately.
Ultimately, small business owners have to realize that things have changed since the CARD Act and that old myths, such as the belief that personal credit cards increase personal liability, must be overcome. There are simply too many up-and-coming companies out there today and times are too tough to let
yourself be held back by the lobbying efforts of credit card companies, which have thus far resulted in Congress only protecting consumers and not small business owners.