Ok, the holidays are over, and it's time to get back to business. A new year has arrived, and with it have come the promise of a fresh start and the desire to make this year better than the last. Perhaps you want to expand your business, go after another client segment or launch a new product. Maybe, considering the tough times we've all been enduring, you just want to increase profits in 2011. Whatever the case may be, handling your expenses wisely is a necessity. While what you spend money on is the most critical decision you must make, your chosen method of payment is important as well. Many small business owners assume they should fund their companies with business credit cards simply because the word "business" is in the name of the genre. However, contrary to naming conventions, personal credit cards are actually often the best spending vehicles for small business owners.
With the passage of the new credit card law (CARD Act) came the institution of a number of credit card regulations designed to protect consumers from the predatory issuer practices that persisted prior to the Great Recession. Such regulations restrict issuers from increasing the interest rate on an existing balance unless a customer becomes severely delinquent.
While these changes are undoubtedly a boon for consumers in general, they only apply to personal credit cards. This means that balances held on business credit cards are vulnerable to becoming suddenly more costly because of interest rate changes. Considering that it's common practice for credit card company executives to raise interest rates in order to quickly increase profits, this lack of protection is troubling for small business credit card users. However, this danger can easily be negated by simply opening a personal credit card and using it for all business purchases that will not be paid for in full by the end of each month.
There is ultimately no good reason not to, especially since the common belief that business credit cards provide greater liability protection than do personal credit cards is, in fact, a misconception. Many people assume that the liability for any payment problems encountered with business credit cards will be at least partially assumed by their companies. However, small businesses are simply not large enough to warrant shared liability, and individuals are wholly responsible for delinquency and default with both small business and personal credit cards. There is no difference between the two in terms of individual liability protection.
However, business credit cards do prove useful in other facets of business spending. They offer additional tools for tracking and reporting business expenses and allow owners to disperse individual cards with customizable limits amongst their employees and then earn rewards on their spending. For these reasons, business credit cards should still be used, yet only for purchases that will be paid for in full on a monthly basis.
Establishing such a strategic method for funding your business will ultimately provide you with the cash flow stability and debt consistency that is integral to small business survival, especially in the current economic climate. So start the New Year off right by opening a personal credit card for your business expenses that will lead to a monthly balance. After all, not doing so is like gambling your company's debt, and no one wants their livelihood to be a gamble.
This article was written by Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card offers and gift card exchange.
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Tom Gazaway