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What’s Your Business Credit Card Game Plan? | Financial Planning Tips

What’s Your Business Credit Card Game Plan?

This guest post was provided by Odysseas Papadimitriou, CEO of Card Hub.

It’s a common question: What’s the best small business credit card? I hear that all of the time, along with the occasional, “What’s the most small business owner friendly bank?” The simple answer is that Bank of America is the best business credit card issuer (I have no financial interest in this recommendation, in case you’re wondering), but the best small business credit card strategy is one that takes advantage of two different cards. Before we get into the specifics though, you’ll need a little background.

Flickr photo by JMRosenfeld

Debt Stability

Most small business owners will have to revolve monthly credit card debt from time to time. According to the NSBA, credit cards provide more than 25% of the total financing for one out of three small businesses in the United States. However, the CARD Act, the financial reform law that took effect in February 2010, only applies to general-consumer credit cards. The implications of this are many, but the most important is the fact that most business credit cards do not enjoy protection from the CARD Act rule that forbids issuers from increasing interest rates on existing debt until payment delinquency reaches at least 60 days. That, in turn, means the possibility of sudden cost-of-debt increases that may come not only because your usage merits it, but instead simply as a result of a credit card company exec’s decision to raise interest rates as an easy way to boost profits and ensure a bonus check.

Bank of America

According to a Card Hub study, Bank of America is the only major business credit card issuer that has voluntarily applied the main protections of the CARD Act, including that which prevents arbitrary interest rate increases. A Bank of America business credit card will therefore provide both the debt stability of a personal credit card, making it possible to budget and allocate funds without the ever-present threat of increased costs, and the unique features of a business credit card account: cards with customizable limits for employees, the ability to earn rewards on employee purchases, and periodic expense reports that simplify tax season and evaluations of company spending.

So, what’s the issue; you should clearly get a BofA business card, right? Not necessarily. By limiting yourself to one issuer’s products, you’ll make it nearly impossible to BOTH minimize the cost of your debt and maximize your rewards. Not only will you simply have fewer options overall, but no single credit card offers both the lowest purchase APR on the market and the best possible rewards for your company’s biggest expenses. Instead, there tends to be a tradeoff with credit card terms; if one feature is exceptional, the rest usually aren’t so much.

Two Cards?

As a result, your other option is to get two credit cards for business use: a low interest card for purchases that’ll lead to a monthly balance and a business rewards credit card for everything else.

Low interest card: Whether you get a 0% credit card or a card with a low regular interest rate depends on your company’s needs, but in either case you should be looking for a personal credit card, since it’s unlikely that one of Bank of America’s business credit cards boasts either the longest 0% APR term or the lowest regular interest rate on the market. Plus, there’s no reason why you can’t use a personal card for business, especially since most major credit card issuers hold customers personally liable for business credit card use anyway.

Business rewards credit card: Since you will never revolve a balance on this credit card, the issuer from which you get it doesn’t really matter. Just look for the card with the best rewards on your company’s biggest expenses.

***FPT suggested no-annual fee business rewards credit card***

The Decision

So where do you want to take your small business talents, Bank of America or a two-card system. Ultimately, your decision rests on exactly how much you value simplicity.  If you aren’t too keen on the idea of using more than one credit card for business, then by all means get a Bank of America card. Just know that the cost of doing so will be more expensive debt and less lucrative rewards. If that price just seems too steep or you don’t mind managing two credit card accounts, then a personal credit card/business credit card combo is for you.

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