Small business owners often turn to credit cards to unlock greater spending power and fuel company growth. In most cases, they can choose to use a personal consumer credit card in their name or a business card in their company’s name.
There are benefits to utilizing a business credit card account, including liberal cash back rewards programs and the ability to establish and build business credit. Yet, putting business purchases on a personal credit card might be a better idea for sole proprietorships due to the government-backed consumer protections they provide.
Business card companies may offer similar safeguards like fraud protection and rate increase notifications; however, this is left to each issuer’s discretion. Therefore, it’s up to you to read and understand your card member agreement so you know which of the following protections you have.
Fraud Protection
When another individual uses your credit cards or account numbers to make purchases without your knowledge or consent, you could be held liable.
The Fair Credit Billing Act (FCBA) limits your liability to $50 for purchases made on a lost or stolen personal card. Anything above that amount is covered if you communicate the loss within 60 days. Plus, you’re not liable for purchases made after you report your card missing or for fraudulent charges made using the card number if the card itself is still in your possession.
The FCBA does not extend to fraudulent business card charges; therefore, to save your credit, you could be on the hook to reimburse your card company for those unauthorized purchases. Your issuer may offer fraud protection, though with more stringent notification requirements — they may only cover fraudulent activity if they’re notified within 24 hours of the breach.
Rate Increase Notifications
Both card types assess an interest rate on balances that rollover from month to month. Nearly all credit cards use a variable rate, so the APR you are promised when you open your account may change over time.
The Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD Act) of 2009 protects consumer cardholders from being blindsided by rate hikes. Issuers are mandated by law to notify you 45 days before new account terms go into effect, including an interest rate increase.
Business card policies are not bound by the Credit CARD Act of 2009. Although many commercial credit card companies will notify you before raising your rates, they are technically allowed to change their terms at any time without notice.
Penalty Fees and Rates
When you make a payment after your due date, most credit card issuers will charge a late fee. Additionally, if you make too many late payments, your regular interest rate could go up considerably.
The Credit CARD Act of 2009 addresses this and directs the Consumer Financial Protection Bureau to establish a cap on personal card late fees. This cap, adjusted annually, is currently set at $27 for your first infraction and $38 for another late payment within six months. Penalty APRs are reverted to your regular rate after six months of on-time payments.
Again, business card issuers can choose to ignore these regulations. Their late fees can be higher than the consumer cap, and penalty APRs can stay in place indefinitely.
Application of Payments
Historically, each credit company had the discretion to apply your monthly payments to your card balance any way they chose. For example, let’s say you had multiple APRs for:
- Balance transfers
- Promotional rates
- Your regular interest rate
Your card company would likely have applied your entire monthly payment to your lower interest charges first — effectively charging you more in interest for a longer time.
Following the passage of the Credit CARD Act of 2009, the government requires card issuers to apply payments made above the minimum due to the highest interest portion of your balance.
Conversely, business card companies can apply payment remittances anyway they choose. If you have a lower rate for your balance transfers but a higher APR balance for purchases or cash advances, this could potentially cost your company more in interest.
Choosing the Right Card for Your Business
Consumer protection laws are more robust for personal credit cards; yet, these differences don’t outweigh the business card perks for many companies. For example, if you want a business account that lets you issue employee cards or establish a business credit profile, a business card may be a better choice.
If your business is new and your personal credit is bad, neither card type may be an option for you. Most lenders screen credit card applicants based on your firm’s track record or ability as the business owner to personally guarantee the debt.
What is the Revenued Business Card?
The Revenued Business Card is not a credit card, it’s a purchase of future receivables and utilizes revenue-based financing to provide a prepaid debit card. Although not a credit card, the Revenued Business Card can be used for purchases in store or online similarly to a business credit card. Funding is delivered on a just-in-time basis as card transactions occur. Instead of looking at traditional factors like a personal credit score or business credit score, Revenued looks at your business revenue to determine eligibility. Because of this, it can be an excellent option for business owners who have a limited business credit history or a poor or fair personal credit score.
Revenue-Based Financing Works Differently
Traditional lenders like banks and other credit card companies look at a number of different factors when determining how much credit a business deserves. Usually, a large part of their decision making is based on the personal credit history of the business owner. Because of this, many business owners who have poor credit are unable to access capital through those companies. This is true even if their business is producing revenue or if the primary reason their personal credit score is poor is because they’ve used their own funding resources to build their business.
Revenue-based financing works differently. Instead of determining eligibility based on a business owner’s personal credit score, Revenued looks primarily at the revenue of the business itself. We purchase a portion of your future receivables at a discount in exchange for providing working capital to you when you need it fast.
Unlike many credit cards, the Revenued Business Card does not require a hard credit inquiry, so there is no temporary dip in the credit score of the business owner. Additionally, the card’s spending limit increases with a business’ revenue, making it a great option for businesses who are seeing rapid growth and need access to more funding for their operations.
