Business funding with a personal touch

Businessman using a business credit card.Running a small business often seems intensely personal. Owners complete most of the work, fund the majority of the costs and shoulder all of the risk. Small business success is hard to achieve, especially given today’s financial landscape. However, most people assume that the credit card they use is one of the few areas of their small business that should not be personal. They think that because they are running a business, their credit card’s title should therefore contain the word “business.” Such people are mistaken, though, because personal credit cards are often the best tools with which to fund small businesses.

Liability considerations

It is a common belief that business credit cards confer some measure of financial liability protection to small business owners. The perception is that because these cards serve business purposes, any financial difficulties encountered while using them ultimately falls not on the owner as an individual, but on the business as a separate entity. This is not the case, however, because lenders make no distinction between a small business owner and his or her company. Unlike with larger businesses, small business liability is personal liability. Therefore, one advantage commonly attributed to small business credit cards is actually nonexistent. This fact becomes especially important when the effects of the new credit card law (CARD Act) are considered.

CARD Act implications

Among the many regulations instituted as part of the CARD Act are stipulations prohibiting lenders from applying increased interest rates to existing balances or implementing penalty APRs until a consumer is 60 days delinquent. While these changes do provide significant consumer benefit, they only apply to personal credit cards. Therefore, a bank can assess an arbitrarily increased interest rate on a balance held with a business credit card, thereby making a user’s credit card debt more costly. This fact makes use of such cards inherently risky for carrying debt, as it is a common practice for credit card companies to raise interest rates as a means of quickly increasing profits. Thus, a small business owner should employ a personal credit card for this type of spending because of the protection and stability it will provide.

Still, having a business credit card for smaller purchases that will be paid for in full each month is a good idea, as well.

Business card utilities

Business credit cards should be employed for all purchasing that does not expose one’s balance to vulnerability because such cards have certain features that make them apt for business use. More specifically, business credit cards provide better reporting that allows users to easily track and monitor business purchases as well as give cards with personalized limits to employees, which owners can then earn rewards on.

Recommendations

Personal and business credit cards have inherent perks and drawbacks. However, when used correctly in concert, they provide a net benefit to small business owners. A user must simply remember to fund any purchases that will lead to a balance with a personal credit card and all others with a business credit card. By doing so, this person will be able to manage his or her small business with the predictability and cash flow stability necessitated by the current state of the economy and precluded by unexpected cost-of-debt increases.

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