Best Business Credit Cards for Small Business

Thursday, June 7, 2012 at 4:15pm by Site Administrator

How Recent Credit Card Legislation Affects Small Businesses

Legislation written for private consumers does not always extend to businesses. The recent credit card reform act, or CARD, was specifically created for individuals. The protections of this act do not extend to small businesses, so the credit card companies are making extremely enticing offers. Before you decide to get a rewards card for your growing business, you should know exactly what you’re getting into.

New Revenue Streams

Like most small businesses, the credit card companies are looking to make a healthy profit. With the passage of the CARD act, several of their revenue streams have been shut down. Accepting the loss isn’t an attractive option, so they will look for ways to increase revenue through other sources. Unprotected by the act, small businesses become a very attractive source for boosting revenues.

Increased Interchange Rates

Every time a customer swipes their debit or credit card, you have to pay a fee to the card issuer. Once set at 2% or less, those rates are on the rise as credit card companies seek to make up lost revenues. This rising expense lowers profit margins, making it harder for small businesses to maintain operations or expand.

Interest Rates can Change

If you have a card as an individual, your interest rate cannot be changed without your consent. If you don’t approve of the new interest rate, you can opt out and close the account. Existing rates will remain in place, ensuring that you won’t have to face higher interest charges. This protection does not exist on business cards. Lenders can change interest rates at any time without advance notice. Interest rates can also be raised for exceeding the credit limit or missing a payment. Unable to opt out of the rate hike, you will be forced to pay the higher fees.

Changing Credit Scores

A small business depends on the owner’s credit rating. You are responsible for making payments, and failure to do so will damage your personal credit rating. Of course, this can also be a benefit as a positive payment history on your card will improve your score. The chance to build a strong credit history can also help with future applications and business needs.

No Collateral

Because the cards don’t require collateral, business owners don’t have to worry about losing their home or other assets if they have difficulty making the payments. Less risky than traditional business loans through banks, they are an attractive option for business owners.

Easy Access

Credit card companies are now pushing business cards because they are not covered under the CARD act. At the same time lending requirements are becoming tighter for traditional loans, business credit cards are becoming easier to get. With no collateral required and the promise of sweet rewards, more small business owners are turning to this revolving form of credit for meeting financial shortfalls.

Maximizing Benefits

In an effort to issue more business cards, lenders are offering fantastic rewards programs. You can maximize the rewards by being smart with the charges you make to the cards. Limit the use of your business card to company purchases. It keeps the records clean and helps to separate you from the business should a customer of the company try to sue you on a personal level. If you pay the bill in full every month, then you won’t have to worry about the possibility of rising interest rates.

Before deciding that a business card is the right choice for you, you should be aware of the advantages and disadvantages of working with credit. You cannot escape higher interchange fees, but you can benefit from rewards cards. While you must be aware of the possibility that interest rates might increase, you can avoid the dilemma by paying the card in full every month. Unsecured loans that are easy to get can help you expand your business, making them very attractive for businesses trying to grow. When you know all the facts, you can make an informed decision that will benefit your business.

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