New small business credit cards in 2013? Here’s why you’ll want to think twice from this point forward…
- Credit Card Reform Not Applicable
The fact that we finally got credit card reform in this country is a major win for consumers. However, while this is great news for your personal cards, it’s bad news for old and new small business credit cards. Why? Because they aren’t included in the reform. That means the bank can still pull the ol’ interest rate bait ‘n switch on a small business credit card.
- Small Businesses Are Categorized As Riskier
Thanks to all the economic turmoil over the past few years, new small businesses are being scrutinized more than ever when it comes to giving them credit. If you are a sole proprietor or recently formed an LLC or corporation, it’s considered to be an especially risky proposition. However there’s good reason for creditors being skittish. Take Advanta… they were the second largest issuer of small business credit cards in the United States. Back in 2009, a staggering 1 out of every 5 accounts were in default, now the company is bankrupt. All of the other small business creditors suffered brutal losses on these accounts too. Obviously the economy has since recovered, but banks haven’t forgotten how risky business lending can be.
- Might Have Lower Credit Limits Than Personal Cards
Due to the extreme risk associated with small businesses, even if you can get approved, your credit limit might be lower than what you would get with a personal card. This is especially the case for new small business credit card applicants, since new companies are considered to be an even higher risk.
- Interest Rates Are Higher Than Before
In the past when times were good, some small business credit cards actually had interest rates that were lower than what was available on most personal cards. Advanta (as discussed above) was notorious for doing this, however now that they’re bankrupt, that train has left the station. I have several American Express cards – one of them a small business card I’ve had several years – and even with my perfect credit and zero debt, my interest rate on it more than tripled back during the recession! So it doesn’t matter how good your credit is… we are all being affected.
- You Will Need To Personally Guarantee The Credit
Unless you have an established corporation or business entity that has successfully been using credit for years, you will have to make a personal guarantee to get a new small business credit card. That means it will be under your Social Security number – just like a personal card is. However unlike a personal card, since it’s still technically a “business” credit card so you will not be protected by the recent credit card reform.
Compare the current business credit card offers
Are there any alternatives to business versions?
You can always consider a personal card. If the purchases are for your new small business, you can still write them off. What I did with my first business was open a personal card and use it exclusively for the business, that way I didn’t have to sort the transactions.
For this purpose, right now I highly recommend the AmEx Blue Sky. Sure, I do advertise AmEx cards on this site, but take a look for yourself at this card and you’ll see why it’s an honest recommendation. Myself and many others have had great luck getting respectable credit limits and the rewards can’t be beat with it. For more info, check out my personal review of the American Express Blue Cash.