How to Pick a Credit Card for Your Small Business

Author: Odysseas Papadimitriou
Published: August 23, 2010 at 10:12 am
The new credit card law (CARD Act) that came into effect earlier this year has changed the credit card landscape considerably. Consumers using personal credit cards now have additional protection from things such as unexpected interest rate increases and extensive penalty fees. Unfortunately, business credit cards were not included in the protections provided by the CARD Act and continue to carry risk for business owners who use them as a funding vehicle.

Although they are called business credit cards, the business owner is still personally responsible for the debt incurred on the card. Since you are assuming this risk already, business owners should consider the advantages of both personal and business credit cards when making decisions about how to finance their business. In my opinion, a personal credit card is the best choice for funding purposes (i.e. when you have to carry a large balance) because of their protection under the CARD Act, and business credit cards are the best choice for purchases that you know you can pay back in full right away.

Using a personal credit card for funding will offer you predictability, which is essential in making long-term financial plans. Under the CARD Act, the credit card company is not allowed to increase your interest rate on an existing balance until you are a full 60 days past due. With a business credit card, on the other hand, the credit card company may change your interest rate suddenly and for any reason at all.

Additionally, the final phase of the Credit CARD Act that went into effect on August 22nd, also put limits on penalty fees for personal credit cards, relieving you of the superfluous costs of extensive fees.

While business credit cards do not offer the same protection as personal cards, they have their own advantages too. For example, business credit cards are much more effective in tracking and managing daily expenses, as they allow you to set different credit limits and give individual cards to each employee.

They also offer higher credit lines, which makes them a more powerful purchasing tool than personal credit cards. However, as stated before, the purchases you make on a business credit card should be paid back in full in order to avoid the expense of a sudden interest rate increase.

The key is to take advantage of what both business and personal credit cards have to offer and make them work for your business. Using business credit cards for your day-to-day transactions and personal credit cards when you need to carry a balance will give you both the flexibility and protection you need when running your own business.