What to Know About Business Credit Cards

Unlike personal ones, business credit cards don't have to adhere to the new regulations.

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The holidays are over, business operations are ramping up once again, and while the numbers on the calendar have changed, no drastic shift in the state of the economy has occurred. It’s still a tenuous time for small businesses, and owners need to take advantage of every possible edge in order to make this year more fiscally successful than last.

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While there are various ways to improve your business operations, one way of doing so revolves, simply enough, around what type of credit card you use to fund business expenses. Most people assume that business spending should be charged on small business credit cards because of simple naming conventions; however, new credit card laws have made this partially untrue.

The new credit card law (CARD Act) instituted certain protections that make consumer credit cards safer to use. Credit card companies now cannot increase interest rates on existing balances unless a card holder is at least 60 days delinquent. However, these regulations do not apply to business credit cards.

Interest rates for business credit card accounts can be changed at any time and these changes can be applied to existing debt, even though it was incurred when the rate was lower. Therefore, if a credit card company executive decides to increase profits by raising interest rates—a common practice—your balance will be at risk of becoming suddenly more costly if it’s held on a business credit card. At a time when having cash flow stability and a consistent sense of your debt is so important to small business success, this is a dangerous proposition. However, there is no rule against using personal credit cards for business purposes, so use one for any expenses that will lead to a balance at the end of the month.

Many small business owners might be hesitant to this because of the common misconception that business credit cards provide greater liability coverage than their personal counterparts. They believe that much of the liability for things like delinquency and default incurred on a business credit card is assumed by their companies. However, in reality, no liability difference exists between business and personal credit cards, and, with both, the individual account holder is ultimately the sole person liable for any payment issues. 

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Small businesses are simply not big enough entities to warrant having shared liability, and credit card companies essentially view them as extensions of their owners. Therefore, no reason exists not to make use of personal credit cards in business situations. Business credit card accounts do still have significant utility, however. For instance, they help small business owners easily and effectively track business expenses and allow them to give cards with individual limits to employees, whose spending they can then earn rewards on.

As a result, you should make use of one for all expenses that will be paid for in full by the end of each month. Ultimately, success in business is predicated on adaptation. You must adapt to changing markets, competition and clientele. Similarly, you have to react to the opportunities and roadblocks presented by changing legislation.

New laws have made carrying a balance with business credit cards risky, so adjust by supplementing your business payment funding apparatus with a personal credit card. Doing so will bring stability to your business and will help it succeed in these trying times.

Odysseas Papadimitriou is the chief executive and founder of CardHub.com, a website that helps consumers compare credit cards and buy discounted gift cards.