As any start-up business owner knows, when you’re starting a new business it may be difficult to get funding. Out of necessity, many new business owners rely on personal credit cards to get their new business off the ground.
Advantages to Using Your Personal Credit Card
The advantage to using your personal credit card is that it carries with it the consumer protections of the CARD Act of 2009 requiring:
- 60 day waiting period before raising the interest rate on a delinquent balance
- 45 day notice before changing key account terms
- Fair allocation of overpayments to the balance with the highest interest rate
For example, under the CARD Act, a consumer cardholder is not subject to a rate increase on an existing balance unless the cardholder is at least 60 days late in payment.
Be aware, however, that balance limits on personal credit cards are usually lower than those on small business cards. If you have a rapidly growing business, you may need the larger credit line offered by a small business credit card.
Fortunately, many of the major credit card companies have extended some of the protections of the CARD Act, including the protection against arbitrary rate increases, to their small business credit cardholders. This is important because it allows small businesses to know how much their debt will cost. This in turn enables small business to make investments in the future of their business with the security of knowing what their interest payments will be.
When might a small business card be preferable to using your personal account?
If your business is ready for the higher credit limits offered by a small business card, there are important terms to look for in choosing the right card. Key beneficial terms to look for in a small business credit card include:
- Higher balance
- No reporting of the business card activity to your personal credit report.
- Waiting period for interest rate increases on existing balances
- 45-day notice of any change in key account terms
- Fair payment allocation of overpayments to the balance with the highest interest rate
- No double cycle billing (the issuer doesn’t use the average balance over the past two billing cycles to calculate finance charges)
- No universal default (the cardholder is not considered to be in default because of a delinquent payment on a separate loan or bill
Whether you use your personal credit card or a small business credit card, be sure to use the card responsibly. As your business continues to grow you’ll want to maintain a solid credit history in order to qualify for the bigger business loans you may need to fund your expansion down the road.
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