With new consumer protections covering personal credit cards, entrepreneurs face a conundrum when choosing credit cards for their businesses. Should they apply for business or personal credit cards?

The question is important because most small businesses rely on credit cards, particularly in today’s climate when bank loans are tough to get. Eighty-six percent of entrepreneurs reported using a business or personal credit card primarily or exclusively for business, and more than half, 59 percent, reported using credit cards to finance capital needs, according to the National Small Business Association 2009 credit card survey.

New federal credit card regulations, which restrict arbitrary rate increases, over-limit fees, and other consumer-unfriendly practices, apply only to personal credit cards. The regulations, effective February 22, 2010, offer no such protections for small-business credit cards.

That means entrepreneurs could face rate hikes at any time, and it’s unclear how credit card companies will approach business credit card accounts, now that they’re restricted in changing rates and terms on personal credit cards.

So as a small business-owner, what should you do? Before switching to a personal credit card for the consumer protections, consider the advantages of a business credit card:

1. Cleaner Record Keeping

With a business credit card, you avoid mingling personal and business expenses. A business account creates a cleaner paper trail for tax purposes and makes it easier to track expenses through the year.

2. Begin Building a Business Credit History

When your business is a startup, you qualify for a business credit card based on your personal credit, and in the beginning your handling of the account shows up on your personal credit reports and impacts your credit score. But a business account enables you to begin building a separate credit history for your business.

3. Business-related Credit Card Perks

Many business credit cards feature rewards geared to business, such as discounts on travel and shipping and points toward office supplies.

4. Higher Credit Card Limits

Business credit cards tend to have higher credit limits than personal credit cards, and your credit limit can grow with your company’s needs.

5. Credit Cards for Employees

You can get multiple cards for employees and set limits on their spending.

Although business credit cards don’t get the consumer protections of personal credit cards, they definitely deserve consideration if you’re looking for a way to finance your business.

Published 01/06/10 (Modified 03/18/11)