Choosing a Business Credit Card

July 30, 2009

As small business lending has dried up, small business owners are increasingly relying on business—and personal—credit cards to finance their operations. The issuance of new credit cards was also down early this year over last year, but if you have established credit cards, make your payments on time, and have a decent personal credit score, you should not have difficulty getting a business credit card.

It's probably easiest to apply for a business credit card from the same company where you already have a personal credit account, says Bob Carr, chairman of Heartland Payment Systems (HPY) a payment processing firm based in Princeton, N.J.

Three Criteria

"There are three criteria to look at when deciding what card to get: Annual fees, Interest rates, and Rewards," Carr says.

Some of the business cards that charge annual fees also offer attractive rewards programs, particularly to customers with good credit, so calculate how likely you are to take advantage of rewards and how helpful they will be to your business. Rewards programs vary by issuing company, but they can include cash back and/or discounts on travel and merchandise.

Be very careful to compare interest rate policies, particularly if you plan to use the business credit card to finance a startup. "Interest rates that can be raised an unlimited amount are scary. They can go up 50% on you very quickly," he says. Look for credit cards that have a cap on rate increases.

Marc Myerson, a former president of Los Angeles-based merchant credit-card processing company Premier Merchant Services, says that because of interest rate increases and the added cost of transactions, he has paid off most of his credit-card balances in recent years. Now retired, he closed all but two of his accounts, which he pays off monthly.

"We see every day how these banks try to balance their books to compensate for bad investments by greedy bankers on the backs of their bread and butter, the individual and small business person," Myerson says. He recommends the American Express (AXP) small business card, mostly for its robust rewards program. "The incentives from bank-issued cards have dried up, for all intents and purposes," he says.

CARD Act Protection

Accounts In May, President Obama signed into law the Credit Card Accountability Responsibility & Disclosure Act. That legislation, which goes into effect early next year, gives consumers increased protection from unfair card fees and deceptive practices by credit-card issuers.

"The new rules will make it a lot easier to understand what you're paying, and a lot of the games these issuers have been playing with interest rates will go away," Carr says.

However, at this point that law will apply only to personal credit card accounts, not to business credit cards. If you want to take advantage of the new law, you may want to apply for a designated personal credit card that you can use to loan money to your business. Just make sure to keep accurate financial records so that your personal funds do not become mixed with your business accounts, a practice that is ill-advised for tax and legal reasons.