Running your own business takes energy, organization – and a whole lot of money. Using a credit card for funding a small business can provide you with the resources you need when you don’t have the cash. However, due to small business credit cards’ exclusion from protection under the Credit CARD Act, you should think twice before carrying a balance on your small business credit card.
Even though it’s called a business credit card, the business owner is still personally responsible for the debt incurred at the end of the day. Since the owner is assuming this risk already, it makes sense to use a personal credit card for purposes such as funding or any other expense that you can’t pay back right away. This way the Credit CARD Act will provide the protection you need when carrying a balance.
A personal credit card offers much more predictability and stability for someone managing a business. For instance, the credit card company cannot increase the interest rate on existing balances and cannot apply the penalty APR until you are 60 days delinquent. The Credit CARD Act also enforces a payment allocation system for personal cards that is more advantageous for the cardholder. Credit card companies do not have to adhere to such restrictions when it comes to business credit cards.
Don’t get me wrong, a business credit card offers its own advantages and can play an important role in financing your expenses. For example, a business owner can set individual credit limits for each employee, which makes managing and tracking expenses much more efficient. Business credit cards also often offer higher credit lines, making it a more effective spending tool when multiple people are using the same account.
These factors make business credit cards an excellent choice – even better than personal credit cards – when used as a charge card. In other words, it is my recommendation that you use a business credit card for making company purchases, but only those purchases that you plan to pay back in full at the end of each month.
When making decisions around financing your business, you should take advantage of what both business and personal credit cards have to offer. The combination of the two will give you the most purchasing power while allowing you to fund your business without being subjected to the whim of credit card companies.