If you’re looking to start a business, you might be inclined to open business credit cards to keep track of all your expenses. Understanding your specific liabilities and paying off the balance in full each month is crucial.
The problem with opening a business credit card is that typically your business has to be established for two years. This can be a problem for new small business owners looking to kickstart their business.
The CARD Act Doesn’t Apply to Business Accounts
The 2009 CARD Act states that creditors must disclose their fees and interest rate hikes. With business accounts, your creditors can change the terms at any time. Creditors have unrestricted rights to charge you penalties and some cards can come with higher annual fees.
- 80% of business cards has a clause that states they can change the terms at any given time
- 84% of the business cards states that they can apply payments to lower interest rate balances first (so for example, if you take out a cash advance, your payments will not be applied until the general purchase balance is paid off first”
- 67% of business cards include penalty rates (universal default)
Business Credit Cards = Personal Cards in Disguise
As I mentioned earlier, it’s tough for new small business owners to get approved for a business credit card. Most lenders will run a credit report on the individual and make them personally guarantee this debt. This is possibly the worst situation you can run into. Most lenders do not report your payment history to the credit bureaus, so even if you’re making timely payments, you’re not getting credit for it. On the other hand, in the worst imaginable situation where you default on the payment, your creditors will start to report it. It’s a lose-lose situation for you.
So what now?
Here’s the bottom line. As a small business owner you’ve already chosen to take risks. Knowledge is power. When I first got my own business credit cards about four years ago, I was unaware of all these facts. I carried a small balance, but nothing that spiraled out of control.
If you decide to get a business credit card, keep a clean balance sheet and make sure you’re paying off your balances in full every month. One missed payment can make everything spiral out of control. As a small business owner, you already have hundreds of things that are on your mind, don’t make your credit cards one of them.
Author Bio: Kevin is one of the founders of SpringCoin and a certified credit counselor with the NACCC. SpringCoin helps consumers lower their monthly payments while helping them establish healthy spending habits. Previously, Kevin started his own affiliate company for one of the largest debt settlement companies but later lost faith in the industry after seeing poor results, lack of transparency, and lack of long-term financial impact. He spent the later part of his year fighting against these debt settlement companies to set things right with his clients.