While small businesses with multiple employees who use company cards may benefit from small business credit cards, truly small businesses and sole proprietorships may want to consider sticking with personal credit cards for their business purchases.

Early this week, the Federal Reserve opted against extending the same protections afforded to consumer credit cards to small business credit cards.  Thus, the problem with small business credit card cards is pretty straightforward:  they offer none of the protections that consumer credit cards now provide as a result of the CARD Act. 

For example, credit card companies can raise rates on small business card holders at any time, for any reason, just as they did last year to millions of consumers.  This puts small business owners at risk of skyrocketing 29.99% interest rates that could create substantial cash flow problems.

Additionally, many small business owners incorrectly believe that they are shielded from debt incurred by their businesses.  However, most small business credit cards require a social security number from an officer of the corporation, LLC, or sole proprietorship, and this person could be liable for debts incurred.

For many American small business owners, using a personal credit card will provide protection from rate increases and other negative changes in credit card terms.  However, anyone choosing to use personal credit cards for business should use a separate account for business activity. 

Mixing business and personal charges on a credit card can make accounting very difficult.  Not only do you have to sort through and separate charges, but you must also separate interest and various fee expenses.  This can be a time consuming hassle.

In order to take full advantage of the protections afforded to consumers by the CARD Act and streamline accounting, the best option for many small business owners is to open a business use only personal credit card.  Not only will you enjoy the benefits I’ve already outlined, but there are additional benefits, such as lower interest rates and annual fees, zero percent interest rates that last up to 18 months, and reward programs that many small business cards do not offer.

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