Running A Business

The Business Credit Card Conundrum

Jan 03, 2014 • 3 min read
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      Did you know that many of the protections you take for granted on your personal credit cards don’t apply to a business credit card? If you didn’t you’re not alone. However many entrepreneurs have learned that personal—or consumer—credit cards are a little more friendly in terms of protections and fees when compared to business credit cards. Which might explain why many entrepreneurs are shunning business credit cards in favor of using their personal credit cards to pay for business expenses.

      “The move by entrepreneurs into using consumer credit also belies a dirty secret in the business world: Consumers have almost exclusive protection for credit card transactions and electronic bank transactions,” writes Jeremy Quittner for “Small-business owners are treated like an entirely different class of citizen: They have next to nothing.”

      Some of the differences can be expensive if you’re not careful:

      1. Liability is limited on consumer cards: If your card is lost or stolen, you are limited in liability to $50 because of the 2009 CARD Act. Many card providers have even chosen to make their cardholders whole should their card be lost or stolen—meaning you won’t pay anything. Not so for business credit cards.
      2. Interest rates don’t arbitrarily jump on a consumer card: Before your interest rate can increase on a consumer card, the card issuer is required to give you 30-day notice. Not so with a business card. In fact, the card issuer can retroactively apply a new rate to any unpaid balance. This can make carrying a balance on a business credit card problematic.
      3. Consumers have 21 days to pay their card balance: Although there are some card issuers who offer this to business card holders, it’s not a requirement. In fact, a business credit card issuer isn’t required to keep your payment due on the same day every month. This can become confusing to small business owners who don’t maintain an accounting staff or a bookkeeper to pay their monthly obligations.

      There is an advantage or two business cards offer:

      1. Small business cards provide advanced reporting capability
      2. Business owners can issue cards to multiple employees

      If you don’t need the reporting features or intend to issue multiple cards to employees, this might not seem like a worthwhile benefit when compared to the protections your business card might not offer.

      This is by no means a comprehensive list, but explains why many small business owners are relying on their personal credit cards to pay for business expenses. In fact, according to the National Federation of Independent Business, “Forty-nine percent of small-business owners currently use personal credit cards for business, compared to 42% in 2009,” writes Quittner. “By contrast, 59% of small businesses with employees used one or more business cards, down 5 percentage points from 2009, NFIB reports.”

      It’s hard to blame small business owners for following this trend when you consider Michael Prichinello’s story—owner of Classic Car Club in Manhattan. The 12-person company rents classic cars to its members.

      “Although Prichinello says the company made regular payments on the outstanding balances of its business card, a CitiBank card, the credit line shrank without warning to $2,000 from $50,000 recently,” reports Quittner.

      It’s hard to blame Prichinello when they chose to start using personal cards. There is definitely a problem with the system. We recently talked about this on the Business Fuel podcast. Some business credit card providers have chosen to offer the same CARD ACT protections to small business owners that are mandated by law for consumers. I think this is a great thing for small business owners and hope we see more and more card providers following this practice.

      In fairness, using your personal credit card for business expenses isn’t all a bed of roses—it could come back to haunt you should the bank do some digging. Before you decide to take this option, you really should compare cards and make sure you’ve chosen the right one.

      About the author
      Ty Kiisel

      Small business evangelist and veteran of over 30 years in the trenches of Main Street business, Ty makes small business financing and trends accessible in common sense language devoid of the jargon.

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