Business Credit Card Cons – Before rushing to apply for a business credit card, it’s important to consider these potential downsides:
Security Issues: Security measures should be created to ensure that cards or card information is not stolen by employees, vendors, contractors and others who come through the office space. It’s also important to make sure that employees that are authorized to use the card do not use the cards for personal spending, and that they take precautions when making online transactions to avoid being hacked.
More Expensive: The convenience and ease of small business credit cards come at a price: They typically charge a much higher interest rate (1-3% over prime) than a small business loan or fixed line of credit offered by a bank. That interest can add up quickly if card activity is not repaid on time and in full each month. In addition, without a system to regularly and carefully monitor card usage it can be easy to accidentally overextend your firm financially by going over your firm’s credit limit or incurring late fees or penalties. (For more on this, read Six Major Credit Card Mistakes.)
Fluctuating Interest Rates: Unlike a loan or fixed line of credit, the company that issues your credit card can reset the interest rate on your credit card depending on how you use and manage your account.
Personal Legal Liability: Most small business credit cards require a personal-liability agreement (your personal security) to repay debt. This means that any late or nonpayment could result in a negative personal credit report and the inability to personally borrow money. You also may have to pay more with a higher interest rate.
Ensure Accountability – “The most important step a small business can take to make sure credit cards are used effectively is to set up a bomb-proof accountability system,” says John Burton, CEO of Moonshadow Learning Services, a leadership development company near Asheville, N.C. “This could mean everything from pre-approval of all credit card spending, to rigorous requiring of receipts, to pulling credit cards from those who do not report completely and on time with receipts,” says Burton.