Ok, close your eyes and imagine…wait, don’t close your eyes because you wouldn’t be able to read this…just imagine that you’re a small business owner (which I’m sure many of you actually are) who isn’t always able to pay his credit card bill in full before the end of the month. Now, this isn’t uncommon for a small business owner, so you think nothing of it…until one day you wake up and see that the interest rate being applied to your credit card balance has suddenly skyrocketed. Your debt is now much more costly, your carefully-crafted budgets are useless, and you fall behind on more and more payments, and…BOOM, you’re out of business. Sounds like a nightmare, huh?
While this scenario is a bit far-fetched, 82% of small businesses have credit card debt, according to the National Small Business Association, and cost-of-debt increases can indeed wreak havoc on these companies, throwing off budgets, ruining business development plans and causing a whole lot of stress. This isn’t intended to scare you, but instead to show just how important picking the right credit card is to small business success. All of these headaches, as well as countless others, can be avoided if you know what you’re looking for and are able to ignore certain key aspects of conventional business credit card wisdom. This then begs the question: Just what should one look for when choosing a small business credit card?
1. Debt stability
2. Enhanced business expense tracking capabilities
3. Control over employee spending
4. Rewards for all employee spending
So, where does this leave us? Well, it leaves you with a choice. Do you value the simplicity of using a single credit card for all of your small business needs or would you divide and conquer.
One-card simplicity: In order to get all of the aforementioned characteristics in one card, you must open a Bank of America business credit card. Bank of America could be construed as the best small business credit card issuer, given that it’s the only one to voluntarily apply all of the CARD Act’s main tenets to its business credit card offerings. The CARD Act—personal finance reform legislation that took effect in February 2010—only legally applies to consumer credit cards, which means most business credit cards do not benefit from rules such as that which prevents issuers from increasing interest rates on existing balances for any reason other than the cardholder missing three consecutive payments.
Divide and conquer: Carry your credit card debt on a personal credit card in order to get all of the CARD Act’s protections and win the debt stability battle. Use the best rewards business credit card for purchase you will pay for in full prior to the end of the month in order to win the convenience and rewards battle. After all, there’s no rule against using personal cards for business purposes, and this strategy would allow you to get both the card with the lowest interest rate and the card with the best rewards on your company’s biggest expenses instead of a single card that is average across the board.
Finally, in case you were wondering, you won’t be opening yourself up to more personal liability by using a standard credit card for business spending. According to a Card Hub Study, most major credit card issuers hold small business owners personally liable for the misuse of business credit cards and report details of this use to the owners’ personal credit reports, so the biggest difference between personal and business credit cards would therefore have to be branding. So don’t worry about how your credit card is labeled, just use one of these basic strategies and focus your energy on running a successful business.
This is a guest post from Odysseas Papadimitriou, a former Capital One executive and the current CEO of Card Hub.
This entry was posted on Monday, November 14th, 2011 at 6:20 pm and is filed under Credit Card. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.