Running a small business is an inherently personal endeavor.  You pour your money, heart and soul into getting a company off the ground, and you live and die with its successes and failures.  It is the object of your time.  It is a reflection of your personality.  Yet for some reason, many business owners find it inappropriate to use a personal credit card to fund business expenses.  Labels are labels, they seem to think.   If a credit card is designated as being for business, it will be used as such.  If it is classified for personal use, then it will fill that niche as well.  However, recent legislative changes prove this course of action, in fact, unwise and actually make personal credit cards the best tools for certain small business spending.

CARD Act is an Incentive to Use Personal Credit Cards for Business

Among the numerous consumer protections instituted by the new credit card law (CARD Act) are restrictions that prevent credit card companies from changing an interest rate on an existing balance unless a customer has reached 60 days of delinquency.  These rules eradicate some of the predatory practices once common amongst unscrupulous credit card companies and help provide consumers with a consistent sense of their debt.  They also do not apply to business credit cards.

As a result, balances held on business credit cards have the potential to become unexpectedly more costly, especially considering that credit card companies often raise interest rates in order to quickly up profits.  Such debt uncertainty is dangerous for small businesses, particularly in the current economic climate, since profits margins tend to be low and organizational stability is borne from cash flow consistency.  Therefore, small business owners must refrain from using business credit cards for purchases that will not be paid for in full by the end of the month.

They should instead utilize personal credit cards for such spending.  Business owners are often hesitant to employ personal credit cards because they think such products confer less liability protection upon them than do business credit cards.  They believe that the liability for any problems incurred with a business credit card is completely assumed by their companies.  This, however, could not be farther from the truth as banks view these organizations as being too small to warrant the exclusion of individual owners from culpability.  Thus, banks ultimately hold both businesses and individuals responsible for any payment issues.  Such an outlook means that no consumer liability disadvantage results from using a personal credit card and thus no reason exists not to do so for purchases that will lead to a balance.

This is not to say that business credit cards no longer have a role in business spending, however.  Indeed, they should be used for any purchases that will be paid for in full by the end of the month.  Business credit cards allow owners to simply and effectively track business expenses as well as distribute cards with individualized limits to employees while earning rewards on their spending.

Business owners must simply develop a more strategic payment strategy than exclusive use of a business credit card.  To survive they must evolve with the payment market.  Right now, that means using a personal credit card for expenses leading to a balance and a business credit card for purchases that will be paid for in full.  In the future, this dynamic might change, but at the present, it’s the most logical payment game plan because it helps foster business stability.