Business credit cards offer a variety of enticing perks to companies that use them skillfully. But with those tempting rewards come a unique battery of risks that can catch unprepared businesses off guard.
Here are some of the risks that come with using business credit cards…
Table of Contents
The most obvious risk you take when using business credit cards is accruing interest.
Business credit card APRs typically fall in the mid-to-high teens. If you carry a monthly balance on your business credit card, interest will begin to accrue on your account. This interest is an additional, and often unnecessary, business expense.
To figure out how much you’ll be spending in interest, divide your APR by 365. So, if your APR is 18 percent, your daily interest rate will be 0.0493 percent. In other words, if your balance on a given day is $1,000, you’ll accrue 49 cents in interest on that day.
As you can imagine, those small charges add up very quickly. Most carriers will offer a grace period to make payments without being charged interest, but you’ll need to keep an eye on your bill to see if you’re meeting them. Unlike personal credit cards, there’s no set, legally enforced interest-free window.
Bait & Switches
Personal credit cards are governed by the Credit CARD Act of 2009. This legislation ensures that cardholders get 21 days to pay their bills, won’t be subject to retroactive rate increases, will receive ample warning before rates are increased, and will have payments applied to their highest APR items first.
Unfortunately, those protections do not apply to business credit cards. That means credit card companies can change your rate, and even your billing date, with little warning. In a worse case scenario, this can leave you facing charges you aren’t prepared for or make it more burdensome to pay off standing debts.
This doesn’t necessarily mean your credit card company will be pulling shenanigans with your account, but you need to be on guard for it. Be especially wary of changes if you miss a payment, as they’ll often be used as a rationale for tinkering with your terms of service.
You’ll also want to be aware of less nefarious tactics like introductory offers. You may be expecting them to expire, but did you know your credit card company can revoke them at any time, for any reason?
Needless to say, keep an eye on your statements.
Affect On Your Credit Report
At this point, business credit cards are probably sounding like the wild frontier of revolving lines of credits. Unsurprisingly, this can carry over to credit reporting.
There’s no industry standard governing what bureaus your credit card activity is reported to, or if it’ll be reported at all.
This means that some companies will report your business credit card activity to commercial credit bureaus. Others will report it to consumer credit bureaus. Some will report it to both. Some will report it to neither.
So if you’re hoping to create a partition between your personal and business credit, you may have a hard time doing it with a business credit card. This can also make it difficult for you to use a business credit card to repair your personal credit.
If you’re concerned about how your business credit card usage shows up on credit reports, be sure to contact your credit card company and find out what their policy is.
Depending on how your business is incorporated, you may or may not be personally liable for business debts in general.
Business credit cards, however, tend to require a personal guarantor on the account. That means that you are responsible for those debts should your business close. On the other hand, that also means you can treat that business debt as personal debt if you file for bankruptcy.
Keep in mind that these risks are a collection of worst case scenarios. Many companies maintain mutually beneficial relationships with their business credit card providers. Nevertheless, it is a poorly regulated segment of the credit card industry that comes with a number of dangerous pitfalls. Just don’t be caught unawares.
Looking for a convenient rundown of some of the most popular business cards? Check out our comparison chart.