5 tips for finding the best credit card for your small business

October 29, 2014

Guest blogger Odysseas Papadimitriou of CardHub and WalletHub shares insight on securing the best credit card for your small business.

Guest blogger Odysseas Papadimitriou shares insight on securing the best credit card for your small business.

Trying to find the right credit card for your small business can feel like finding a needle in a haystack. As CEO of the credit card comparison website CardHub and the personal finance social network WalletHub, I’ve come into contact with small business owners who know this first-hand. There are thousands of offers out there and it’s difficult to determine which ones are actually decent – not to mention which will approve you.

It’s an important decision, though.  Credit cards are double-edged swords – offering both an array of perks and significant downside – and it’s especially true for business owners that choosing incorrectly will drastically increase the odds of a negative outcome.  With that in mind, here are five of the most important things you need to know about choosing a credit card for your business.

  • You Can’t Avoid Personal Liability: A lot of people believe business credit cards shield them from personal liability – meaning an issuer could only go after a customer’s corporation, and not her family, in the event of an unpaid balance.  That’s a myth.  You’re going to be held personally liable whether you’re using a personal or business credit card.
  • Your Personal Credit Standing Matters Most: Have you ever wondered why you’re required to include your Social Security Number on a small business credit card application, in addition to an Employer Identification Number?  It’s because your personal credit standing will be used to determine your eligibility for a business account, as credit card issuers consider small businesses to be mere extensions of their owners.  Improving your personal credit standing is therefore the best way to get a better business credit card.
  • You Shouldn't Carry a Balance on Most Business Cards: Despite the intimately personal nature of business credit cards, they were not granted the same legal protections as general-consumer cards under the Credit CARD Act of 2009.  This law cleaned up a lot of the shady practices common in the industry prior to the Great Recession, making credit card use eminently safer for the average person. One of the most important rules put into place by the CARD Act prohibits issuers from arbitrarily jacking up the interest rate on a revolving balance unless the cardholder is at least 60 days delinquent.  This is designed to prevent bait-and-switch pricing:  advertising one rate, only to trap the accountholder with more expensive interest payments once they accrue a bit of debt. Since this rule does not apply to business credit cards, carrying a balance on one is generally unwise. It’s difficult to run a business when you never know how much your debt is going to cost, after all, and that could change for little or no reason at any time.
  • Business Credit Cards are Best for Tools & Rewards: While business-branded credit cards are legislatively flawed, they still have a distinct role in the modern entrepreneur’s arsenal.  In fact, business credit cards are known for two things in particular:  A) lucrative rewards in business-specific spending categories, such as telecomm services and office supplies and B) helpful expense tracking features that promote organization and strategic thinking.  As such, business credit cards are best suited for everyday expenses that you pay off in full by the due date each month.
  • The Island Approach Offers the Best of Both Worlds: The Island Approach is a credit card strategy that involves using multiple cards for distinct purposes in order to promote mental clarity and garner the best possible terms on every transaction you make.  For most people, this might entail using a 0% credit card to carry debt and a rewards card for everyday purchases, rather than a single card offering altogether mediocre terms. For small business owners, the benefits extend even further.  By using a 0% general-consumer credit card for financing and a business rewards card for everyday spending, you’ll also be giving yourself the gift of CARD Act-supported debt stability and a host of business-specific benefits.

Now that you’re more familiar with the credit card landscape – including the differences between business and personal credit cards and how to account for them with a two-card approach – establishing your company’s credit card arsenal shouldn’t be too difficult.  All you need to do is comparison shop, focusing on rates and fees with your general-consumer financing card, and rewards value with your everyday business card.  If only everything about running a small business were so simple!

Odysseas Papadimitriou is CEO of the credit card comparison website CardHub and the personal finance social network WalletHub. He previously worked as a senior director at Capital One.