By Odysseas Papadimitriou, founder and CEO of CardHub.com. Card Hub is the leading online marketplace for the best credit card deals for both small business owners and consumers.
As an entrepreneur, you're most likely accustomed to thinking outside the box. You're also probably pretty familiar with the importance of funding and debt stability to a growing business venture. That's good because new laws enacted toward the tail end of the Great Recession necessitate some creative thinking when it comes to small business credit card use.
The first thing you need to know is that so-called business credit cards aren't as business oriented as you might think. According to a Card Hub Study, while business credit cards do generally offer some unique services that enhance small business operations, they are fundamentally quite similar to personal, or general-use, credit cards. More specifically, with either type of card, you will be held personally liable for unpaid debt and usage information will be relayed to your personal credit reports. That is why your own credit standing, and not that of your business, is the most important aspect of business credit card underwriting.
The second thing you must be aware of is the distinction the Credit CARD Act of 2009 makes between business and personal credit cards. Despite the obviously close ties between small business credit cards and the individual consumers that use them, bank lobbyists managed to rationalize excluding "business" branded cards from the aforementioned law. This might not mean much to you at first, but consider that the CARD Act prohibits issuers from increasing interest rates on existing debt without cause. The omission of business credit cards from the law therefore means that your interest rate can change at any time, for whatever reason.
In light of this information, you must be wondering how an entrepreneur such as yourself can benefit from credit card use in this new environment while also mitigating risk. That is a very valid concern-one which requires just one more piece of background information to explain fully. The third and final thing you need to know is that business credit cards are still useful, given that they all tend to offer certain features that simplify the task of running a company. For example, business credit cards allow you to designate employees as authorized users, establish custom spending limits, and earn rewards on their purchases. In addition, they simplify business expense tracking, which makes it easier to evaluate company spending and prepare company taxes.
In order to both achieve debt stability and benefit from common business credit card features, you'll therefore want to use two credit cards. One should be the personal credit card with the best interest rates that you'll use for purchases that you cannot pay off before the end of a single billing period. The other should be the business rewards credit card with the most lucrative rewards for your biggest expenses, which you will obviously use for purchases that you have the means to pay for in full immediately. This type of two-card strategy takes its keys from the Island Approach to credit card use, which holds that each credit card you get should be used for a specific purpose. This allows you to get the absolute best card for each of your needs, rather than a single card that addresses all of them in an average manner.
With this business credit card game plan in hand, you will be well positioned for entrepreneurial success and a step ahead of the competition.