Fundamental Shift in How Small Business Owners Approach Credit Card Spending
As a small business owner, do you need two different credit cards in order to handle both your personal and business spending? Well, yes, but the reasons why this is indeed the case are different and somewhat more complicated than they were just a couple of years ago. The passage of sweeping credit card legislation, such as the CARD Act, has not only curtailed predatory issuer practices and eliminated pervasive fees, but it has also resulted in a significantly-altered credit card landscape that necessitates a new approach to spending. Business credit cards are no longer the sole proprietors of the business spending domain. Personal credit cards must now supplement their use because new laws actually make them more apt to meet certain small business owner needs.
One of the rules instituted by the CARD Act prevents credit card companies from applying an increased interest rate to a pre-existing balance until a customer becomes at least 60 days delinquent. This regulation increases the consistency of your debt and prevents it from becoming suddenly more costly as long as you are using your card responsibly. However, it only applies to personal (general-use) credit cards.
Business credit cards are not included within the scope of this particular regulation, which means that debt held on one is at risk of becoming abruptly more expensive. Having a consistent sense of your finances is integral to succeeding as a small business owner, especially in economically-trying times such as these when profit margins are thin. You must be able to properly allocate funds and make significant yet requisite purchases without worrying how a change in the cost of your debt will affect your resources.
Therefore, despite not following naming conventions and perhaps not being what you’re used to, you should use a personal credit card for any and all small business expenses that will lead to a balance remaining at the end of the month. Doing so will provide you with a sense of security when it comes to your debt and will help promote the organizational consistency your small business needs to thrive.
Business credit cards should still be used for all other spending, however, as they provide various features tailored specifically to business success. For instance, if you have a business credit card account, you can easily provide members of your team with their own cards and then earn rewards on their expenditures. A business credit card also makes tracking and documenting business expenses quite simple.
The strategic business owner should thus use a combination of credit cards for company spending: a personal credit card for larger expenses that will lead to a balance and a business credit card for those that will be quickly paid for in full. This will foster debt predictability and, contrary to a widely-believed myth, will not result in increased owner liability. Many people assume that liability for a business card’s use falls upon the business itself and therefore protects an owner’s personal finances. However, a small business is too small of an organization to assume liability in place of its owner, and both an owner and his or her business are liable for things like credit card debt and default. Therefore, the switch to using a general-use credit card in addition to a business credit card is a wholly positive one and must be made.
