Businesses operate according to different rules than people. These differences mostly involve financial decisions because consumers are subject to protections and regulations that businesses are not. This distinction also applies to credit cards. Credit card companies are allowed to exempt businesses from the regulations stipulated in the Truth in Lending Act and the Credit CARD Act of 2009. This makes the world of business credit cards potentially more risky for business owners. Here are the basics about business credit cards and things business owners have to beware.
The Advantages To Business Owners
Credit card companies offer a variety of incentives that sweeten the deal for business owners to apply for their cards. Before checking out the rewards of owning a card, the business owner must decide what will be the purpose of the card. Financing current purchases, cash advances or consolidating current business debts all call for unique strategies. The business owner must keep in mind what his monthly cash flow is and whether or not he can afford to have a business credit card under current circumstances.
The rewards the credit card companies use to entice new cardholders may be tempting. Often such rewards take the form of cash back for certain purchases. Some cards offer benefits like types of insurance or redeemable points for traveling or gas expenses. Make sure to choose a card that offers benefits in line with the purpose of the card.
Buyer Beware
The Credit CARD Act of 2009 imposed new regulations on the credit card industry. Consumers are protected from sudden rate hikes, double-cycle billing and other practices. Creditors must also disclose to borrowers why they rejected their application for credit or when they close a borrower’s account. Business credit cards are not under these protections. Business credit card owners are subject to sudden rate hikes without warning. Additionally, positive credit items do not automatically get added to their credit report, but negative items will almost always get added.
The biggest reason for using business credit cards is separating business and personal finances. This is an important step when a business grows to the point where it needs to convert to a limited liability company or some other organizing structure. A business with its own bank accounts can make use of a business credit card.
Business credit card holders are responsible for finding out when their credit card bills are due each month. Creditors can change those terms from month to month. The burden is on the cardholder’s shoulders to find out his due dates. There are no limits on late fees or over-limit fees.
Conclusion
Business owners have to decide whether or not business credit cards are worth the risks and expenses. The convenience they afford can help businesses expand their operations by giving them access to a new source of credit. Cost-benefit analyses must be applied to any business credit card before applying for it.
Not all credit cards offer the same rates and benefits. If you are looking for a credit card for your business, you should read the following article: credit card compare to learn about the basic terminology.
