Best Practices for Using A Business Credit Card

There are many advantages to using a business credit card including higher limits and greater rewards. When used responsibly these accounts offer a flexible revolving line of credit for short-term financing.

  1. Avoid cash advances:

    Small business credit cards can be expensive with exorbitant interest rates and fees. Credit cards are convenient for regular expenses but should not be used for cash advances. When you’re in need of cash, using a business line of credit is the better option because usually do not have cash advance fees.

  2. Be diligent with employee cards:

    Credit cards offer the convenience of closely monitoring charges, this way you can track employee expenses. Just make sure you’re managing how the card is being used.

  3. Protect credit and finances:

    Most business credit cards require a personal guarantor. The guarantor is giving personal liability on any debts that go unpaid on the account. If the account goes delinquent the creditor will report to the guarantor’s personal credit and the business credit. Consider the damage that business credit cards can do to your finances and credit before signing personally.

  4. Watch your personal purchases:

    Opening a business bank account and revolving account are crucial first steps to building business credit profiles, it’s best to keep your personal expenses separate from the business. Many credit card providers have a provision in their terms (whether they enforce it or not is debatable) that that says business credit cards should only be used for business expenses. Bank of America includes this clause on page one of their terms and conditions:

    BOA credit card terms snip

  5. Use it as a tool to build credit:

    Business credit cards can be easier to qualify for than business loans or lines of credit. Especially if the applicant is a new business owner. If used properly the account can help establish business credit profiles and scores. Not all but many business credit cards report to Experian Business and/or Equifax business.

Few federal regulations

There are few federal laws regulating business credit cards or protecting business owners. The Fair Credit Reporting Act (FCRA) is a consumer-centered bill, with little regulation offered to business credit card holders. This means that credit card providers can:

  • Raise and fluctuate interest rates without notice.
  • Raise interest on existing balances.
  • Charge interest on debts that were paid on time.
  • Offer less options to dispute billing errors.
  • Set limits on return protection. For instance, they may cap number of returns you can do on the card each year and give a limited return window.

To try and reverse these unfair practices, The Small Business Credit Card Act has been introduced to congress, but has not come to fruition. Owners need to be diligent about reading the entire terms of the account before applying due to these hidden risks that business credit accounts come with.

North Shore Advisory offers a Concierge Program for building business credit that is done in-house by our team of credit experts. We also offer a Business Credit Repair program for companies with established profiles who need damaging information removed. We will customize our services to fit the needs of your unique business. Reach out to us today for a free consultation.