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Don't get a business credit card -- unless you're a business

by Peter Andrew

There are some really attractive offers for small-business credit cards around at the moment. You might find a sign-up bonus that could give you tens of thousands of free miles just for getting your application approved and meeting a spending threshold in the first three months after your account's opened. You might get extra-generous rewards. And you might find the cost of your borrowing cheaper. At the time of writing, this site's credit card rates monitor shows business rewards plastic charging an average APR more than two percentage points lower than that for consumer rewards cards: 15.53 percent against 17.87 percent. No wonder some bloggers have started to urge consumers to apply for business plastic.

Dangers of business credit cards

Superficially, this seems a good idea. Lots of card issuers seem uninterested in whether their business customers actually operate businesses. Of course, you should never lie on an application, and you should take care that you're not in breach of any conditions in the agreement, but there seems to be a good chance many consumers could legitimately get business plastic regardless of their trading status.

Just because something's possible doesn't always make it a good idea. Three years ago, IndexCreditCards.com published an article, Business credit cards can be a bad idea for consumers, that explained why -- and nothing much has changed since. The main reason is that plastic called "business," "corporate" or "professional" doesn't provide the same protections as cards designed for consumers. In fact, it's specifically excluded from some legislation. And this means, among other things:

  1. There are no legal caps or rules on penalty fees or rates.
  2. If credit card rates rise -- and that's more of a "when" than an "if" -- any increase can be applied to your old spending (your then existing balance) as well as new purchases.
  3. There are no rules about fixed payment dates and "grace periods" (the interest-free time you get between a purchase and the next statement due date), so you might innocently incur penalties just by not paying enough attention to your bill.
  4. You don't have the same statutory protections against liability for fraudulent transactions, although some issuers voluntarily provide something similar.

It's also worth noting that very few -- if any -- small-business credit cards protect the owners of enterprises if their ventures go belly-up. The plastic may be in a limited-liability company's name, but it's almost certain you're going to have accepted personal responsibility for the debt when you signed the agreement.

Make an informed decision

All this has prompted at least one blogger to suggest that the owners of small businesses should shun corporate cards, and stick with consumer ones. There's nothing wrong with that idea, especially if you're just starting up a new venture, and are likely to face cash-flow strains that could see you make late payments. At least your consumer plastic is going to protect you from the worst excesses of penalty fees and rates.

But if you're past that phase, and never struggle to make card payments, you don't need most of those consumer protections. Indeed, if you're a consumer who always makes card payments on time, you may decide a business card might suit you. The important thing is to apply for one only if you fully understand the consequences.

Business set to boom?

Certainly, corporate cards are likely to have a role to play -- though, one hopes, a minor one -- in what may well be the final phase of the current economic recovery. And the future for small enterprises is now "rosier," according to new research carried out by American Express, and published on Oct. 22. In its Fall 2014 OPEN Small Business Monitor, the company found very nearly two in three (63 percent) owners of such ventures having a positive outlook, a number not previously reached in the last seven years.

In other words, we're back to levels of business confidence and optimism not seen since before the credit crunch and Great Recession. That assertion was supported by the latest data, published Oct. 27, from the Association for Financial Professionals, which showed U.S. companies cutting their cash holdings, something that day's Financial Times called "an important turning point in the recovery."

Of course, businesses should choose, when possible, to borrow over the longer term at much lower interest rates than plastic can offer, but, used carefully, cards can iron out minor cash-flow hiccups. And that applies equally to commercial and personal use -- and to business and consumer credit cards.

Published 11/10/14 (Modified 11/19/14)


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