How to Use a Small Business Credit Card Without Getting Screwed

Banks and credit card companies are so frustrating to deal with that keeping your money under your mattress and eschewing plastic entirely can be tempting. That’s an understandable impulse, but if you want to start your own business, having a credit card is unavoidable – and because small business credit cards don’t have the same kind of protection that consumer credit cards do, opening a credit account for business purposes can be risky. But cheer up. As long as you play your cards right, you’ll be fine.

What’s the main difference between business and personal credit cards? The CARD Act. This legislation, which went into effect in 2009, protects consumers from shady bank and credit card practices, but it only covers consumer cards, which effectively makes business card owners second-class citizens under the law. There’s no limit to the amount of fees you, the business card owner, can be charged for making a late payment or for exceeding your spending limit. Card companies don’t have to notify you 45 days in advance that your fees are about to go up – in fact, they don’t have to notify you at all.

Even worse, those higher fees can be applied retroactively. With a business card, credit card companies aren’t required to mail your bill at least three weeks before it’s due, so you could end up having less time to pay it. They can also change your due date from month to month, and they can change your spending limits without notification too.

Michael Prichinello, director of a classic car rental company in Manhattan, recently saw his business credit line shrink from $50,000 to $2,000 without notice or explanation. His solution? He picked up a consumer card for his business instead, and a lot of other people are doing this too. A 2011 survey conducted by the National Federation of Independent Business found that 49% of small business owners are using personal credit credit cards for business, which is seven percentage points higher than the figure before the CARD Act passed. But while using a consumer card for business does seem like a good, quick fix, it isn’t a perfect solution.

For instance, if you discover a significant number of fraudulent charges and the bank does some digging, they’re going to notice that you’ve been using a consumer card for business. There goes the plan. Then you won’t be covered by the protections of CARD Act after all. As Jane Shea, counsel at Frost Brown Todd, explained to Inc. Magazine, “At the end of the day, the test is not what card are you using, but what was the purpose of the transaction.”

Despite their flaws, small business credit cards offer a number of features that cater to the needs of businesses, features that consumer credit cards simply   don’t. They have higher spending limits and provide in-depth transaction details (which come in handy for tax and accounting purposes), and they frequently offer great rewards programs for business-related products and services. The air miles, for example, can be pretty good.

So what can you do to protect your business? Go ahead and use a consumer card, but only for funding. To help save money and provide some debt stability when jump-starting your business, take advantage of the deals that those cards typically offer to consumers – things like 0% percent interest for the first year. If you get a business card too, you can then make use of the rewards those cards offer. It’s not a perfect solution, but until business cards have the same protections as their consumer counterparts, it’s the best one. Finally, let us know how this all works out for you in the comment section.

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