Business Credit Cards Business Guide: Rates and Formalities With Corporate Credit Cards

Business credit cards can be an excellent way to track spending, purchase necessary supplies, and build the credit of your business. If you are familiar with consumer credit cards you may be surprised to find that regulations vary between the two types of cards. While the U.S. government implemented many safeguards under the CARD Act to protect consumers, these regulations do not apply to business credit cards.

Business owners should be aware that the rates and terms they will receive will be tied to their personal credit score. However, if you can obtain favorable terms, a business credit card can offer advantages that no other financial product can meet.

Benefits

Just like consumer credit cards, business credit cards offer rewards programs and other incentives to attract clients.

Ease of Bookkeeping

Using a business credit card for most purchases can help you track expenses over time. Some credit card companies will issue itemized statements to help you stay within budget for all of your expenses. Having a business credit card also prevents you from mixing personal and business finances.

Protection Against Employee Fraud

Each employee responsible for purchasing equipment or services can be issued a credit card. This immediately creates employee accountability for spending. Many credit card companies also offer protection against employee fraud and will cover charges up to a certain dollar amount.

Rewards Can Help Your Business

While many credit card companies offer cash back and other typical rewards on their business credit cards, there are also incentives specifically for business owners. Cards may offer discounts on business services, equipment, and travel.

Helps Build Business Credit

Opening a business credit card can help you establish independent business credit. Business credit cards are also often easier obtain than loans, which makes it easier to establish credit. Once the business is established, you can use the favorable credit history of the business to seek a business loan. Good business credit can also help you find business credit cards with more favorable rates.

Pitfalls

Due to the limited regulations that apply to business credit cards, keeping your account in good standing can be difficult or confusing. However, while business credit cards are not subject to the same restrictions as consumer credit cards, many credit card companies follow some CARD Act policies when issuing business credit cards. Business cardholders who take advantage of these protections should keep in mind that these policies can change in the future.

Rates Can Change Retroactively

Unlike consumer credit cards, the rates on business credit cards can change without notice and be applied retroactively to old purchases. Although some credit card companies will comply with consumer credit card regulations when issuing business cards, policies vary between companies.

Payment Due Dates Can Fluctuate

Companies that issue business credit cards are not required to mail the statement 21 days before the payment due date. Due dates can change month-to-month and it is your responsibility to anticipate any changes to avoid high late fees. Late fees are set at the discretion of the credit card company and are not capped by current regulations.

No Restrictions on Over-the-Limit Fees

Rather than declining a card that is reaching it's limit, the credit card company may accept the charges but will charge you an over-the-limit fee. Unlike a personal credit card, there is no cap on this fee. In fact, the fee for this courtesy could exceed the amount of the over-the-limit charge.

The Card Is Tied To Personal Credit

Before issuing credit, the credit card company will require that you guarantee you will personally pay any charges. Therefore, even if the company fails, you will be personally liable for the balance of the cards. Also a good payment history may not be reported to the credit agency, but a missed payment or default will be added to the business owner's personal report. The only exception is for large and established companies that have demonstrated assets that could cover a default.

Pricing

Business credit card rates and annual fees will be strongly tied to the business and personal credit of the potential cardholder. When choosing a card, you should weigh any card rewards against an annual fee or a higher rate. If the business intends to pay all statements promptly, you can often obtain rewards with a monetary value that will offset any annual fees. However, if there is a possibility of carrying a balance over to the next month, most cardholders would be better served with a lower interest rate than card rewards.

Business credit cards offer significant advantages when starting a company, but you should be wary to avoid incurring excessive fees and rate hikes. If you intend to apply for a new card, you should carefully cultivate your personal credit to obtain the best terms. You should also be aware that you are personally liable for the company's debts.

If you are ready to navigate these potential pitfalls, card rewards and other benefits can make business credit cards a lucrative tool. Fraud insurance can also easily save you thousands of dollars and offer piece of mind.