The flood of television, radio and print ads for small business credit cards might lead you to believe that these newfangled pieces of plastic are a revolutionary advancement for business owners, a saving grace in a time of economic woe.
But they’re not. When it comes to saving graces, small business credit cards are anything but. In fact, they often put consumers at even greater risk for debt and financial ruin than regular credit cards. Here’s why:
- They Capitalize on a Catch. When the Credit Accountability, Responsibility and Disclosure Act was passed in 2009, consumers were finally granted protection from the sudden interest hikes, steep penalties and suffocating contracts that credit card companies used to maximize their profits. Small businesses, however, were not. As a result, the credit industry discovered that if they added “business” to their card’s title, they were free to exploit and penalize their cardholders just like they did before such practices were deemed illegal.
- You Don’t Need to Own a Business to Own a Small Business Card. Perhaps the dirtiest trick up the credit industry’s sleeve is convincing private consumers to sign up for these business cards. According to a Consumerist article published in May, over 2.6 billion small business credit cards were sent out to private citizens. Their purpose? To woo consumers who believe they’re still enjoying the protections levied by the CARD act into signing up for what appear to be very low interest, high limit credit cards. Of course, once someone signs on the dotted line the card provider is likely to jack up interest rates without any notice whatsoever and begin penalizing consumers for any infractions.
- You’re Locked In. When a credit card company changes the terms of a consumer credit card contract, the card provider has to inform their cardholders at least 45 days in advance and give anyone with an account the ability to opt out of the new rules. This isn’t the case with business cards. If you read the fine print of a small business credit card contract, you’ll find that most of these contracts grant the company the ability to change the terms at any time, without notice. By signing, cardholders have legally waived their right to opt out.
- They’re the Only Option. You might be wondering why, if these small business credit cards are such a scam, there are currently over 14 million small business accounts open across the country. The answer is simple – they might be a bad option for business owners, but they’re often the only option. With the economy in the tank, it’s harder than ever for a start-up to get a loan or any venture capital whatsoever. Therefore, many businesses depend on these cards to cover their expenses.
Although some creditors, like Bank of America, have changed their business card terms after the truth about these “innocuous” little pieces of plastic started to circulate, many card providers still use them as a means to prey on the unwitting. If you’re a small business owner who needs a business credit card, the best thing you can do for yourself is to take your time going over all the fine print in your contract. Even if you can’t help what you’re getting into, you’ll be able to take steps to protect yourself when you know exactly how these cards work.