Business credit cards carry disadvantages

NEW YORK – Running your own business takes energy, organization - and a whole lot of money.

Using a credit card for funding a small business can provide you with the resources you need when you don't have the cash. However, due to small-business credit cards' exclusion from protection under the Credit CARD Act, you should think twice before carrying a balance on your small-business credit card.

Even though it's called a business credit card, the business owner is still personally responsible for the debt incurred. Since the owner is assuming this risk, it makes sense to use a personal credit card for purposes such as funding or any other expense that you can't pay back right away. This way, the Credit CARD Act will provide the protection you need when carrying a balance.

A personal credit card offers much more predictability and stability for someone managing a business. For instance, the credit-card company can't increase the interest rate on existing balances and apply the penalty APR until you're 60 days delinquent. The Credit CARD Act also enforces a payment allocation system for personal cards that's more advantageous for the cardholder.

Credit card companies such as Capital One, JPMorgan Chase, Bank of America and Citigroup don't have to adhere to such restrictions when it comes to business credit cards.

Don't get me wrong, a business credit card offers its own advantages and can play an important role in financing expenses. For example, a business owner can set individual credit limits for each employee, which makes managing and tracking expenses much more efficient. Business credit cards also often offer higher credit lines, making it a more effective spending tool when multiple people use the same account.

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