This guest article was written by Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card offers and gift card exchange.
Take a guess which is the best credit card for a small business owner to use: a business credit card or a personal credit card? How many people guessed both? That’s right, it’s a trick question. At least it has been since the passage of the new credit card law (CARD Act) that provided myriad protections to personal credit cards, making them-in many cases-more reliable, secure options than their business counterparts.
Among these CARD Act provisions are regulations preventing credit card companies from changing the interest rates on existing balances until a consumer is 60 days delinquent. In addition, issuers cannot raise interest rates at all during the first year of an account. However, as implied, such provisions do not apply to business credit cards, meaning that the interest rates for these cards can be changed at issuer discretion and can apply retroactively to current balances. With this protection disparity considered, would you rather hold a balance on a business credit card or a personal credit card?
The answer is obvious: a personal credit card. Small business owners-particularly in the current market-need as much financial predictability as they can get. As difficult as it is for small businesses to achieve long-term success, most owners cannot afford surprises in their debt expenses that arise simply because raising interest rates is the easiest way for credit card companies to increase profits. Thus, a small business owner should undoubtedly use a personal credit card to fund all purchases that will lead to a balance. Not doing so is essentially gambling the cost of your credit card debt, and most of us are not in the gambling industry!
Many people may balk at this advice because they believe that personal credit cards make them more vulnerable in terms of liability. Indeed, it is a common fallacy that business credit cards deflect liability away from a small business owner and onto his or her company, thus protecting this individual from some of the negative consequences of things like delinquency and default. However, in reality, no difference in liability exists between business and personal credit cards for the small business owner. From a lender’s perspective, a small business is simply not a large enough entity to justify foregoing placing liability on both an individual and his or her business. Therefore, there is nothing holding a small business owner back from using a personal credit card to make those purchases that will lead to a balance at the end of the month.
Still, business credit cards garnered their appellation for a reason, and they do provide significant benefit to users. For instance, they provide excellent means for clearly tracking business purchases. They also allow account holders to disperse cards with individualized limits to employees and subsequently earn rewards on their spending. Such utility aids in the day-to-day operations of a small business and makes business cards the tool with which owners should make purchases that will be completely paid for by the end of each month.
Ultimately, because of the unique advantages each brings, small business owners should have both a personal credit card and a small business credit card in their payment stable. As long as they don’t get them confused and use them for the wrong purpose, these cards will bring a measure of comfort and stability to their businesses. Users will also garner the confidence that comes with acting strategically and saving money. Most importantly, however, their companies will run smoothly and will be given the opportunity to grow unencumbered by unplanned debt expenses.