Credit Card Labels Promote Small Business Risk, Squandered Opportunity

Hispanic entrepreneurship rates are rapidly outpacing those of the overall U.S. population. Since 2002, the number of Hispanic-owned businesses in this country has been growing at least twice as fast as that of the broader small business community, according to a 2013 report from the United States Hispanic Chamber of Commerce. One of the most important decisions that this new crop of new small business talent will have to make is how to fund their companies’ operations.

While the particular barriers to entry in one’s given field will dictate which funding options are necessary and available, it’s certainly safe to say that a credit card is one of the most popular choices. In fact, 31 percent of small businesses rely on a credit card or a line of credit as their primary financing source, according to the Federal Reserve Bank of New York.

Here’s why that could be a problem.

If you’re a small business owner and you’re looking for a credit card, you’ll probably concentrate on the small business variety. And since most of us don’t study financial regulations in our free time, you probably won’t realize the consumer protection law that effectively brought the credit card industry out of the dark ages applies only to general-consumer accounts.

What exactly does that mean?  Most importantly, it means that issuers aren’t governed by the rule prohibiting increased interest rates from being applied to existing balances unless the cardholder is at least 60 days delinquent on payment.  In other words, creditors don’t have to wait until you’ve made a mistake to increase the cost of your debt when using a small business credit card – they can do so anytime they please. Financing company expenses with a small business credit card therefore robs you of debt security, and without that, you’ll have to be more conservative when budgeting future debt payments and less ambitious with plans for growth.

Fortunately, there’s a solution.

Contrary to what many people think, small business credit cards don’t provide any benefits in terms of personal liability for debt. You’ll be held personally liable for unpaid balances regardless of whether you use a business card or a general-consumer card.  And since you aren’t bound to using only business credit cards for business, your debt stability problem can be solved simply by using a general-consumer credit card for any purchase that you won’t be able to pay off in full by the end of the month.

Now is actually a great time to open such a card given that the value of 0 percent deals is near an all-time high, according to data from CardHub’s quarterly Credit Card Landscape Studies. You can get 0 percent on new purchases for up to 18 months or a 15-month free balance transfer deal (i.e. 0 percent intro and no transfer fee).

That, however, won’t earn you any rewards or enable you to dole out authorized user cards with customized spending limits to employees.

But the right business credit card will, and the value it stands to provide is an awfully attractive incentive for putting up with the hassle of having two different credit card accounts.  First of all, issuers are offering over $500 in initial rewards bonuses for meeting certain introductory spending thresholds, and it’s also common to receive 5 percent cash back in key business expense categories like office supplies and telecommunications services on an ongoing basis.  In addition, business-branded credit cards offer superior expense-tracking capabilities relative to consumer cards, especially when it comes to making sense of the purchasing habits of numerous authorized users with individualized spending limits.

Ultimately, overhauling your company’s credit card strategy isn’t necessarily going to be a game changer, but it will save you money, reduce risk, and promote uninhibited growth.  And in this economy (or any, really), who wouldn’t want that?

Odysseas Papadimitriou is CEO of the personal finance websites CardHub & WalletHub.