Small business owners across the country should brace themselves for a barrage of attention from credit card issuers. As lenders are looking to broaden their customer base and generate new revenue over the coming year, small business owners are an increasingly-appealing target.
That is because, according to data released in July 2011 by the National Small Business Association located in Washington, D.C., nearly 80% of American small businesses depend upon credit cards to finance their company and some 42% of small-business owners revolve a credit card balance from month to month.
Michael Germanovsky, editor-in-chief at Credit Land.com cites small business credit cards as being one of the safer financing options currently available for small business owners. Credit cards are unsecured debt, which means that small business owners do not have to put any of their assets at risk – such as their home – in order to borrow money. This is in contrast to small-business loans, the bulk of which require collateral for lenders to collect upon should the loan not be repaid. Frequently, the business`s equipment or the equity on the borrower`s home is used. Michael, however, cautions not-incorporated individuals to refrain from using business credit cards as source of credit, because they are not covered by the CARD Act protection.
What small business owners should be aware of is that there is legal distinction between business credit card accounts and Personal credit card accounts. Business credit card accounts carry much fewer consumer protections than personal cards. The credit card reform law that went into effect in February 2010 known as the CARD Act, contains within it a provision that forbids the increase of interest rates on existing debt unless the cardholders is delinquent by 60 days or more. However, The CARD Act is only applicable to personal credit cards – not business credit cards – meaning that lenders can technically change the interest rate on a business line of credit whenever they choose.
What many small business owners may not know is that it is OK to use a personal credit card for business expenses. They are held personal liable by major credit card companies for their business-related credit cards debts anyway, not matter what type of card they are on. Also, credit card companies report activity on business card accounts to the cardholder`s personal credit report.
In order to lure more small business owners into opening up a business credit card account, some lenders are offering generous rewards and free perks such as budgeting tools, invoicing and cash-management tools.
One successful strategy for small business owners may be to use a combination of both business and personal cards.