For small-business owners, having a dedicated business credit card is a necessity. Business credit cards facilitate the building of business credit ratings, allow for easy record-keeping, and help small-business owners monitor and control their expenses. That being said, credit cards intended for business use are often lacking certain protections that users of personal credit cards have grown accustomed to. What are these vulnerabilities?
While some business credit card issuers offer liability protection if a business credit card is lost or stolen, they’re not legally required to do so. That means small-business owners had better keep close track of their credit cards and statements. This is especially true in situations where the business issues credit cards to its employees. Even if those employees are trustworthy, there is always the chance that a misplaced card could fall into the wrong hands, and that could mean serious trouble.
In contrast, most consumer credit cards limit cardholder liability for fraudulent charges to $50, and some even offer complete protection.
Musical Due Dates
While consumers enjoy a set 21-day grace period to pay their balances without incurring interest charges, business cardholders have no guarantee. In fact, card issuers are legally free to change payment due dates on a whim. For those who fail to keep an eye on their monthly statements, a sudden change to a credit card’s due date can be a rather costly headache.
Interest Rate Surprise
The 30-day notice required when card issuers raise interest rates on consumer credit cards does not apply to business credit cards. Business credit card holders may be dismayed to find that their interest rates have jumped without warning. Card issuers can even make these changes retroactive, applying them to unpaid balances. Business owners who typically carry sizable balances on their credit cards may want to reconsider the wisdom of such a policy.
Saving the Best for Last
When it comes to consumer credit cards, issuers are required to apply the principal of each payment to the portion of the balance with the highest interest rate, but that is not the case with business credit cards. Let’s say a business owner transfers a balance to take advantage of a zero-interest incentive period, and then takes a cash advance at a rate of 20%. It isn’t until the zero-interest portion of the balance has been paid off that the payments even touch the cash advance portion, leaving it to accrue interest for an extended period of time.