Leveraging personal credit cards is a common, but surprisingly effective strategy, writes Odysseas Papadimitriou, founder of Card Hub, a Web site that helps consumers find the best credit cards.

Did you know that around 80% of small businesses use credit cards as funding sources? Perhaps.

Did you further know that business credit cards are actually ill-suited to this application? Most likely not, as the need to use business credit cards for business is one of the biggest credit-card myths out there.

However, with mistakes comes opportunity. And the ability to invest in your company in a safe, predictable manner is certainly an opportunity to improve business operations, gain an advantage over the competition, and accomplish what every small business owner strives for: long-term success.

Before we get to the best small business credit card strategy, there are a few things we need to clear up.

  1. Business credit cards do not prevent personal liability. Many small business owners believe that business credit cards protect them from personal liability for unpaid debt. However, all of the major issuers consider small business owners to be personally liable for business credit card usage, according to a Card Hub study. The sole difference between business and personal card use lies with the fact that both you and your company will be held accountable for business card debt.
  2. Business credit card information goes to your personal credit reports. The personal nature of business credit cards does not end with liability, as the aforementioned study also revealed that the major credit card companies relay information about business card use to your Experian, TransUnion, and Equifax credit reports.
  3. Business credit cards are not governed by the CARD Act. Despite the inherently personal nature of business cards, differences in branding apparently led legislators to exclude them from the personal-finance reform law that was implemented in February 2010 (CARD Act). The ramifications of this are many, but the most important is the fact that credit card companies can change a business credit card’s interest rates whenever they want, for any reason. With personal credit cards, on the other hand, they cannot increase the rate applied to an existing balance unless a cardholder’s delinquency reaches at least 60 days.

The obvious takeaway from this is that you should gravitate toward the lowest-interest-rate personal credit card when looking for plastic with which to fund your business. This will enable you to budget, make business plans, and allocate funds without the worry that you could wake up one morning to more expensive debt simply because raising rates was the simplest way for a credit-card exec to get his bonus.

At this point, it’s important to note that certain business credit card issuers have proactively applied various CARD Act protections to their business cards. Bank of America (BAC) even adopted the important interest-rate protection rule.

While you might therefore consider simply opting to use a Bank of America business credit card for all company spending, this isn’t the best course of action, for the simple reason that a single credit card is unlikely to offer both the lowest interest rates and the best rewards.

So where does that leave us?

Well, you can’t simply abandon business credit cards, because they are actually quite useful in many respects. Not only do they provide enhanced business tracking and management capabilities, but they also tend to offer more lucrative rewards than personal credit cards, and they enable you to give cards with customizable limits to employees and centralize company rewards.

Therefore, the best business credit card strategy entails using a business rewards credit card for company spending that will be paid in full by the end of the month, in addition to a low-interest personal credit card for funding. Doing so allows you to take full advantage of the law, garner the best rates, and benefit from the unique characteristics of a business credit card.

Most importantly, however, it paves the way for the highest possible returns from the investments you’ve made and will make in your business.

Odysseas Papadimitriou is the founder and CEO of CardHub.com.

Related Articles
  1. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  2. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  3. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  4. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  5. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  6. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  7. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  8. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  9. Stock Analysis

    An Auto Stock Alternative to Ford and GM

    If you're not sure where Ford and General Motors are going, you might want to look at this auto investment option instead.
  10. Stock Analysis

    The 6 Biggest Russian Energy Companies

    Learn about the top energy companies in Russia, a country that holds some of the largest reserves of oil, natural gas and coal in the world.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!