In the course of an average month, a small business has a lot of ongoing expenses that are easily covered by credit cards. Whether it’s lunch with a client, a run to the office supply store, or registration to an important conference, a credit card lets you take care of business quickly and easily. It can be an easy source of credit to tide the business over in a period with a cash flow shortfall, too.
There’s one catch with business credit cards: they don’t have the same legal protections as consumer credit cards. The Credit Card Act of 2009 created new protections for the general public, including greater transparency and the prohibition of certain fees. Those rules don’t apply to business credit cards.
Many business owners are tempted to use their personal credit cards, in part because applying for a separate credit card may seem like a low priority given everything else going on. There’s also concern about the less-friendly terms associated with business cards. But there are several advantages involved with business credit cards that can offset those disadvantages, says Jill Gonzalez, an analyst at CardHub, a research firm that specializes in banking services. “Business credit cards offer certain characteristics and utilities that are not available for general consumer credit cards,” she says.
One of the big advantages of small business credit cards is the ability to track business spending, Gonzales says. Many card issuers offer quarterly as well as end-of-year expense reports that simplify tax season. They can also be used to analyze company spending. Both can be more difficult to do if employees use their own cards and submit bills for reimbursement – especially if they don’t turn expense forms in right away.
Gonzalez also notes that most small business credit card programs allow customers to issue cards to every employee who needs one, including the ability to change the limits of these cards as needed. That can be an important control on expense accounts.
The greatest benefit, though, comes from the perks. “The rewards are simply much better than the ones for general consumers,” says Gonzalez. Companies with these cards can earn cash back or other rewards at a faster rate than with consumer cards. Also, if employees use their own cards, they end up keeping the rewards earned on business expenses. These benefits can go a long way towards helping cash flow and reducing travel expenses.
Along with rewards programs, Gonzalez says that many business credit card issuers offer discount programs on office supplies and telecommunications services.
These reward and discount programs vary from card issuer to card issuer, so a little research is in order to determine which card will have the best benefits for your company. Along with that research, spend a little time with the fine print.
Because business cards are not covered by the Credit Card Act, they are likely to have policies that are not permitted on consumer cards. The two big ones are the ability to increase interest rates on existing balances and allowing users to go over the credit limit – for a fee that could be significant. And, because banks don’t have to make business card disclosures as clear as those for consumer cards, it may take some close reading to find out what you may end up paying.
Gonzalez says that most businesses are still better off with a dedicated credit card. “These credit cards not only help as a spending vehicle for your company, but also as a way to simplify and improve your business operations,” she says. As long as business owners take the time to compare card offers and make note of the fees, they’ll find that the benefits help them operate better in the long run.