Let's clear something up from the start: If you're a small business owner, it's going to be awfully tough to insulate your personal finances from the fate of your company. You're probably going to use a credit card – 82% of small businesses do, after all – and the major credit card companies all pull your personal credit reports when making business credit card approval decisions as well as hold both you and the company liable for any debt incurred.
Luckily, knowing this will enable you to implement the most strategic business credit card strategy possible, which will in turn simultaneously increase your company's chances of success and decrease any cause for concern about your personal finances. It will also help you realize why business credit cards aren't always the best credit cards for small businesses.
The Best Role for a Credit Card
One of the biggest problems that small business owners run into is becoming overly attached to labels. They become wedded to small-business-branded credit cards even though one clearly isn't sacrificing personal liability by using a general-consumer credit card. In fact, general-consumer credit cards actually offer far better legal protections given that the CARD Act applies to them and not to small business credit cards.
Perhaps most importantly, this regulatory imbalance means that while issuers cannot increase interest rates for balances held on general-consumer credit cards unless you're at least 60 days delinquent, they can do so whenever they want with business credit cards. Without an accurate sense of how much one's debt will cost, business planning is futile, and companies using business credit cards for funding are at the mercy of credit card company executives.
Simply opening a consumer credit card and calling it a day would prevent you from garnering the best rewards as well. While consumer credit cards certainly have an edge over their business-branded cousins, business cards offer unparalleled rewards on business-oriented spending categories (e.g. office supplies and telecommunication services), unique expense tracking tools, and the ability to set custom spending limits for employees as well as centralize company rewards earning. The best strategy therefore involves getting a great business rewards credit card for everyday expenses as well as a 0% consumer card for purchases that will take some time to pay off.
Some of the cards best suited to this strategy are:
- Capital One Spark Cash for Business (Rewards) – This is a great card for small business owners who want a straightforward way to get a lot of value from any everyday expense. It offers 2% cash back across all purchases, gives you the chance to earn up to $150 in initial rewards bonuses, and doesn't charge an annual fee during the first year ($59 thereafter).
- SimplyCash Business Card from American Express (Rewards) – The SimplyCash Business Card has the potential to be more lucrative than the Spark Cash for Business Card, provided that its rewards reflect your biggest expenses. It offers 5% cash back on office supplies and wireless services, 3% cash back on gas, and 1% on everything else. It doesn't charge an annual fee.
- Slate Card from Chase (Funding - Balance Transfers) – This is what's known as a free balance transfer credit card, which means it offers a 0% introductory term on debt you transfer from another card (for 15 months) and does not charge a balance transfer fee. It doesn't charge an annual fee either, and you can see just how much it would save you on interest by using a credit card calculator.
- Citi Simplicity Card (Funding - New Purchases) – For those of you who don't need to make a balance transfer but could use more than 15 months to pay off a significant upcoming purchase, the Citi Simplicity Card is a good choice, since it offers 0% on new purchases for 18 months and does not charge an annual fee.
Avoid Credit Early On
When you consider that issuers are offering hundreds of dollars in initial rewards bonuses and 0% terms long enough for you to save thousands in interest, it's perfectly understandable if you want to implement this new-and-improved credit card strategy immediately. However, you should only do so if your company is established because small businesses that are overly-reliant on credit card debt for initial funding are actually more likely to fold. That's why you should seek angel investors in order to help get your company off the ground before you implement the aforementioned credit card strategy.
Ultimately, if you use credit to the maximum benefit of your company and avoid leaning on it as an early crutch, you'll be able to forget about damaging your personal finances and instead concentrate on seeing just how much your company can benefit them.