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With the credit crisis now in the rear view mirror, banks and credit card companies are courting small businesses again, and within recent months, they have sent out a flood of new business credit card offers and promotions. Now the job of business owners is to determine how to leverage this credit card power, and that all starts with a savvy evaluation of whether the business credit card offers have real value-added benefits. There are two things to consider in that regard, one positive and the other negative. We'll give you the bad news first.
#1 The Downside
Small Business Credit Cards are Exempt from the CARD Act.
When Congress recently overhauled credit card regulations to rein in abuses by card companies and protect consumers from predatory practices, they did not include business credit cards or professional credit cards under the umbrella of protective laws. Banks are working hard to exploit this loophole in the CARD Act to their advantage, because the provisions of the Act have left them with fewer profits and less tricks up their sleeves.
Because your business credit card is not covered by the CARD Act, you might encounter some ugly and unexpected surprises, especially if you make a mistake in managing your use of the card and your monthly payments. The big difference in not being governed by the CARD Act is that those companies that issue business cards do not have to adhere to the rules surrounding your interest rate. So, if the bank decides on a whim to raise your rate, they can legally do so. With personal cards they have to first notify you well ahead of time, can only do so under specific conditions, and can only raise it a certain amount within a particular timeframe.
Another great feature of the CARD Act is that with personal credit cards is when you make a payment the money you pay has to be applied first to the portion of your balance that carries the highest interest rate. It used to be applied the way that worked out better for the banks, which means they would apply it to the lowest interest rate balance - and continue charging you higher rates on balances carried forward.
So, as you probably guessed it , your business credit card payments also don't get applied where they do you the most good. Chances are they get applied in a way that helps out the card issuer and does the least to help you.
Another rule that applies under the CARD Act, but not to business cards has to do with the date you make your credit card payment. Under the CARD Act, the monthly bill has to get to you the same time each month, 21 days before it is due, and the cut-off times for receiving payments before they are considered late are more lenient. But again, those rules don't apply to business credit cards.
If your payment arrives during business hours on the afternoon of the due date, for instance, your business credit card company can consider it late and not credit it to your account until the following day. That will trigger fees and penalties and most likely cause an immediate spike in the rate of your APR.
#2 The Upside
Many Business Credit Cards Offer Valuable Tools
If you manage your payments well and don't let yourself get trapped into paying fees and penalties, a business credit card can be a really handy tool for running your enterprise. Here are some of the ways that small business owners use this kind of plastic to ensure a smooth operation and keep employees happy while also making bookkeeping easier.
For starters, you can give a business credit card to each employee for them to use when paying for company supplies, gas for the company vehicle, or travel and lodging and so forth. The advantage of giving employees their own plastic is that you no longer have to worry about keeping large amounts of cash on hand and you don't need to keep track of checks and sign them each time an employee needs to pay for something on your behalf.
Additionally, you also have a neat and tidy record that can be used for monthly, quarterly, and year-end accounting purposes. No more arguments with employees about retaining their receipts or getting reimbursed and no more complaints from your bookkeeper or CPA about poor record keeping.
Business credit cards can also help your business establish its own track record of good credit, as long as you make sure that your credit card issuer reports to credit agencies such as Dunn & Bradstreet. Chase Bank, for example, routinely reports to D&B as do other credit card issuers.
Prepaid Business Cards
If you want to use prepaid business cards they may cost a bit more in fees because prepaid cards generally include lots of small charges. They also won't do much to help build your credit record with an agency like D&B. But they can help to simplify accounting, expense management, and keeping track of petty cash expenses.
With prepaid business cards you actually solve most of your payroll problems, too. Just load the card with an amount equal to the employee's wages and give them the plastic. That means you avoid keeping lots of payday cash on hand and your employees do not have to worry about taking their paycheck to the bank.
If they don't have a bank account they can access their funds affordably and quickly, too, without getting gouged by high-cost payday lending or check cashing places that tend to prey on low income wage earners who lack financial resources like checking accounts.
Whether you get a small business card from American Express, Capital One, Chase, or any of the other providers it helps to study the terms, perks, and programs offered to you. To help you understand more about business plastic and how to make it work for you, visit our business credit card section or read through our articles, blog entries, and reviews.