Avoid Tricks and Traps of the Credit Card Industry

A business credit card for your portable sanitation business is recommended by financial experts because it can give you many convenient advantages.

A business credit card gives you “instant capital” for purchases rather than, for example, waiting for a loan or line of credit to be approved. They often offer a higher line of credit than personal cards, as well as business-oriented rewards or cash-back options. They make it easier to track your business expenses. Using a business credit card can also help you build your business credit.

You may be thinking, “I have a personal card. I can just get a business credit card and use it the same way.”

But according to many financial websites such as Forbes (“Business Credit Cards Carry Hidden Risks,” August 28, 2017) and U.S. News & World Report (“Best Business Credit Cards of 2018,” February 12, 2018), there are risks involved with having a small-business credit card that you don’t face with a personal card.

Traps of Business Credit Cards

Business cards don’t have the same consumer protections that personal cards do. Personal cards are covered under the Credit CARD Act of 2009 (Credit Card Accountability Responsibility and Disclosure). The CARD Act improves practices for personal credit cards, such as limits on fees, more advance notice of rate hikes and more time to pay.

According to the financial experts, these are the most hazardous potential “traps” of business credit cards:

• High interest rates — Business credit card rates are usually higher than personal credit cards. Sometimes, much higher. Of course, if you pay off your card every month, this won’t be a problem.
• Changing terms — Business credit card issuers can change the terms of the card agreement at any time.
• Changing payment due dates — With a personal card, the date when your payment is due is always the same from month to month. But with a business credit card, the due date can be different every month.
• Penalties — With a personal credit card, the issuer can’t increase the rate on current balances until you’re 60 days late. With a business card, the issuer can raise the rate on your entire balance and charge penalties if you’re one day late.
• Rate increases — Rates can be changed without notice (personal credit cards require a 45-day notice).
• Personal guarantee of repayment — The issuer can take your personal assets if you can’t pay.

Do Your Homework

Once you become aware of the potential pitfalls, the key to avoiding them is research. Read all the information provided about each card you are considering. You can compare cards online at sites such as cardratings.com and nerdwallet.com.

When checking out different cards, it might be difficult to understand the “fine print.” You can talk to your bank or financial institution, or your financial advisor, about business credit cards. You can also get advice from a SCORE mentor. SCORE is the nation’s largest network of volunteer, expert business mentors and a partner of the U.S. Small Business Administration (SBA). The SCORE website is www.score.org.

In practice, some major financial companies that issue business credit cards usually offer the same consumer protections that their personal cards have, so the card you choose may be just as secure as a personal credit card. However, even after you’ve gotten a card, continue to watch for those “tricks” and “traps.”

Disclaimer: Content provided by JohnTalk is intended solely for general information purposes. JohnTalk does not claim to offer legal, tax, investment or accounting advice. We do not accept liability for direct or indirect losses resulting from the use of information provided. For specific advice about starting or investing in a business, consult with a qualified and licensed professional.

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