New Business Credit Cards

Wednesday, June 13, 2012 at 3:06pm by Site Administrator

Credit Card Traps for New Businesses to Avoid


In a time when banks are not lending to small businesses, a surprising number of business credit card “deals” are available. Some of these deals are not deals at all, but rather traps that businesses, particularly new businesses should avoid. One reason banks are now offering so-called “great” deals on business credit cards at this time is that business cards are not covered under the Credit CARD Act of 2009.

The reforms of the Credit CARD Act of 2009 apply only to personal credit cards. For this reason, banks may impose the same types of fees, raise rates without notice and perform changes to the account with little or no notice to the card holder. All of these activities are regulated under the reform act of 2009 for personal credit cards. However, business credit cards are not covered under the regulations of the 2009 law.

Business credit card companies may still:

  • Allow the credit card to exceed the credit limit, and then charge over-limit fees.
  • The Credit CARD Act of 2009 prohibits issuing banks from charging over-limit fees unless the personal card holder has agreed in advance to allow over-limit charges, and has agreed to pay the fees. The same consideration does not apply to business credit cards. Over-limit fees may still be charged on business credit card accounts.

  • Apply payments over the minimum payment to the balance with the lowest interest rate.
  • The Credit CARD Act of 2009 requires personal credit card issuers to apply any payment over the minimum to the balance with the highest interest rate. Business cards do not qualify for this regulation. Therefore, the balance with the highest interest rate is paid last by payments over the minimum.

  • Raise interest rates if credit reporting indicates negative changes, even if the change occurs due to a different account.
  • The Credit CARD Act prohibits issuing banks from retroactive rate hikes on personal credit cards. However, the same protection does not apply to business cards.

  • Offer introductory rates and then substantially increase rates without notice.
  • The CARD Act requires that issuing banks do not increase rates for one year after the account is open for personal credit cards. However, for business cards, this protection does not apply . Those teaser rates that may entice a business owner to open a business credit card account may be raised substantially and without notice.

  • Charge late fees for short billing cycles.
  • The CARD Act requires that card issuing banks provide the bill 21 days before it is due to give personal card holders ample time to pay the bill and avoid late fees. Business credit card issues are not held to the same standard and may issue a bill sooner, allowing the card holder less time to pay the bill and avoid a late charge.

  • Charge high fees for sub-prime accounts.
  • Business owners with less than stellar credit may still be charged high fees on their sub-prime business credit cards.

Business owners often obtain business credit cards with the best of intentions and many assume that their business cards are protected just as their personal credit card accounts. This is simply not the case. Therefore, it is important to shop around for a business credit card that clearly spells out rates and conditions for rate changes. Obtain business credit cards only from reputable issuers with a history of fair practices on their business card accounts.

Those who obtain business cards must make sure to always pay the bill on or before the due date, never exceed their credit limit and read the fine print on their account contracts. Missing a payment on a business card can and will increase your interest rate.

About half of all small businesses fail within the first five years. One of the main reasons is that the business owner is ill prepared for the cash flow demands of the new business. Many business owners will over-extend themselves by over-charging on their business credit cards when cash flow demands are high. If the business is not supporting itself and the owner is continually making up the difference with a business credit card, they are simply digging a deeper hole in attempts to create financial stability where it does not exist.

Tracking the performance of the business is crucial for the business’s success. Though a business credit card may smooth over a rough patch, the credit line is not going to make an unsuccessful business successful in the long run.

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