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The dilemma of using personal vs. business credit cards

By Odysseas Papadimitriou,November 22, 2011

Whatever happened to business not being personal? Despite the oft-quoted adage that hints at an almost church-and-state-like separation between the two, it seems that business is as personal as ever with the Credit CARD Act now dictating the tenor of personal finance.

This piece of reformatory legislation, which took effect in February 2010, not only cracked down on sketchy credit card company practices and revamped consumer rights, but also created an interesting new landscape for the roughly 80 percent of small businesses that use plastic as part of their financing strategy, according to the National Small Business Association.

Interestingly, the CARD Act actually personalized business by creating a forced distinction between personal and business credit cards. Despite the fact that all major credit card companies hold small business owners personally liable for business credit card use and relay information about said use to small business owners’ personal credit reports, legislators excluded so-called business credit cards from the law’s protections.

Apparently, simple branding and the influence of lobbyists outweighed the evidence suggesting that “business” credit cards do indeed fit the description of an open-ended consumer agreement — the type of product to which the CARD Act applies.

So what does this mean for small business owners using plastic to support their growing business ventures?

Obviously, it means that they are forgoing key CARD Act protections by continuing to use business-branded credit cards for all company spending. More specifically and most notably, small business owners are shutting themselves off from the CARD Act rule that prohibits credit card companies from increasing interest rates on existing debt for any reason and at any time. Under the CARD Act, issuers can only increase rates if cardholders are at least 60 days delinquent.

It also means that personal credit cards are now suddenly relevant to business. Prior to the passage of the CARD Act, small business owners were resigned to debt instability primarily because it was inevitable regardless of the type of card used. Now, the most savvy small business owners use personal credit cards to avoid unwarranted interest rate increases on company debt and business credit cards for expense tracking and rewards purposes.

The CARD Act has also created a new hierarchy among small business credit card issuers, as a number of them have proactively applied certain CARD Act protections to their business credit card offerings. Bank of America, however, remains the only one to extend every major CARD Act protection to its business credit cards. While it might seem rather ironic that BofA could be construed as the best business credit card company in light of the way it has handled a personal credit card law, that’s just how things are these days.

Ultimately, small business owners now have more and better credit card options that allow them to not only track company spending with ease, customize limits for employee cards, and earn rewards on all company expenses, but also gain cash flow predictability on their debt expenses.

Odysseas Papadimitriou is an entrepreneur who founded the credit card comparison Web site Card Hub in 2008. Prior to that, he was a senior director at Capital One.