Photo: Business Insider
Many consider them to be a recipe for disaster. Most think of them simply as a means of spending money. However, no matter what preconceived notions you might have regarding credit cards, the truth is that when used strategically, they can actually be quite useful.
This has proven especially true for small business owners in the post-CARD Act economic climate. Not only has this financial reform law made it necessary to rethink business credit card use, but competition for the business of consumers who managed to maintain excellent credit throughout the downturn has also resulted in an influx of unique rewards earning possibilities and attractive low interest rate offers.
So what exactly do you need to know in order to thrive in this new personal finance world? Just keep on reading …
Small business credit cards: The New Landscape
You want your credit card to complement your small business and enhance its profitability, not jeopardize its future. However, the CARD Act only applies to personal credit cards, which puts business credit cards at a disadvantage in a number of respects. For example, business cards are not protected by the rule against issuers increasing interest rates on existing debt in the absence of 60+ days of delinquency, meaning it would be difficult to budget and run your business while revolving debt on one.
While you might think that this leaves you with a choice between debt instability and increased liability, this is not the case. According to a Card Hub small business credit card study, all major credit card companies hold business credit card account holders personally liable for misuse. So, a personal credit card provides the debt stability your business operations need without increasing your personal liability.
Does that mean that business credit cards are no longer relevant to small business operations? Yes. I mean, sort of. Only business credit cards that offer rewards still play an important role. Since rewards cards should only be used for purchases that you can pay off entirely before the end of a particular billing cycle, the lack of CARD Act protection won’t really matter with these cards, but they will still provide the unique features that make business credit cards useful in the first place (e.g. regular expense reports that make it easy to manage company spending, the ability to customise each employee’s spending limit and centrally accumulate rewards on all company expenses, etc.).
maximise Rewards & Minimize Interest
Now that you understand the reasoning behind applying a two credit card strategy to your small business, it’s time to figure out how to maximise the potential value of this approach. The first thing you need to understand is that your personal credit report is far more important to small business underwriting than your company’s. Therefore, even if your business is still a baby, you don’t need to focus on business credit cards for new businesses. This is crucial for those of you with at least good credit, as credit card companies are in full blown courtship mode for the most stable consumers in this shaky economic environment and are using credit card rewards and 0% interest rates to lure them.
Your goal should be to find the business rewards credit card that provides the best perks on your biggest expenses and a 0% personal credit card that allows you to save the most on interest. This is called the Island Approach to credit card use because you essentially isolate each of your main credit card needs and get the best credit card for each, rather than a single average card.
We covered a lot of ground in this article, all the way from the best credit card strategy for your small business to rewards maximization. However, there is a common theme to it all: Credit cards can help you earn more money, whether it’s via lucrative initial rewards bonuses or by enabling your business (and your paycheck) to grow. So use plastic to your company’s advantage and benefit from debt stability and increased savings.