Advantages of Business Credit Cards
Business credit cards are often considered to be a potential, personal liability for the business owner, making them useful but risky business financing tools.
While many banks will issue your new business a credit card even without a credit history, they will usually only do so with a personal guarantee from the business owner. That means that the small business owner will be liable for any charges that are made.
This credit card will still allow the business to develop its own credit history. Business owners should have the card issued in the business name and should be sure the bank reports the card payment history using the business’s D&B D-U-N-S® number, the equivalent of a Social Security Number for a business.
The Risks of Business Credit Cards
With a personal guarantee on the credit card, the business owner is pledging to repay the amount and will place their personal assets, such as a car and house, against the liability. This is not a problem if payments are made on time, but could lead to personal bankruptcy in extreme cases.
Less obvious to many business owners is that by creating a business account, they will not receive the protections that laws give to personal credit card holders. Banks are required to give 45 days notice on interest rate hikes and allow personal credit card holders to opt out of any increases, but this does not apply to business accounts. Rates and fees can be increased on business accounts with minimal notice and no real consumer protections.
Fees, like overdraft charges, are limited on personal cards to an amount set by the Federal Reserve. Those limits on fees do not apply to business accounts. This may lead to business credit cards being more expensive.
By making the payments on time, the business owner will ensure that the company builds a good credit history and avoids damage to their personal credit. You should always monitor your business credit score to be sure that the bank is reporting all of the credit activity that your business completes. This can easily be done easily with the CreditBuilderTM service offered by Dun & Bradstreet