There are some really attractive offers for small-business credit cards around at the moment. You might find a sign-up bonus that could give you tens of thousands of free miles just for getting your application approved and meeting a spending threshold in the first three months after your account's opened. You might get extra-generous rewards. And you might find the cost of your borrowing cheaper. At the time of writing, this site's credit card rates monitor shows business rewards plastic charging an average APR more than two percentage points lower than that for consumer rewards cards: 15.53 percent against 17.87 percent. No wonder some bloggers have started to urge consumers to apply for business plastic.
Dangers of business credit cardsSuperficially, this seems a good idea. Lots of card issuers seem uninterested in whether their business customers actually operate businesses. Of course, you should never lie on an application, and you should take care that you're not in breach of any conditions in the agreement, but there seems to be a good chance many consumers could legitimately get business plastic regardless of their trading status. Just because something's possible doesn't always make it a good idea. Three years ago, IndexCreditCards.com published an article, Business credit cards can be a bad idea for consumers, that explained why -- and nothing much has changed since. The main reason is that plastic called "business," "corporate" or "professional" doesn't provide the same protections as cards designed for consumers. In fact, it's specifically excluded from some legislation. And this means, among other things:
- There are no legal caps or rules on penalty fees or rates.
- If credit card rates rise -- and that's more of a "when" than an "if" -- any increase can be applied to your old spending (your then existing balance) as well as new purchases.
- There are no rules about fixed payment dates and "grace periods" (the interest-free time you get between a purchase and the next statement due date), so you might innocently incur penalties just by not paying enough attention to your bill.
- You don't have the same statutory protections against liability for fraudulent transactions, although some issuers voluntarily provide something similar.
Make an informed decisionAll this has prompted at least one blogger to suggest that the owners of small businesses should shun corporate cards, and stick with consumer ones. There's nothing wrong with that idea, especially if you're just starting up a new venture, and are likely to face cash-flow strains that could see you make late payments. At least your consumer plastic is going to protect you from the worst excesses of penalty fees and rates.
But if you're past that phase, and never struggle to make card payments, you don't need most of those consumer protections. Indeed, if you're a consumer who always makes card payments on time, you may decide a business card might suit you. The important thing is to apply for one only if you fully understand the consequences.