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Why Do Business Credit Cards Offer Fewer Protections Than Personal Cards?

Jan. 8, 2014
Business Credit Cards, Credit Cards, Small Business
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If you’re a small business owner, you’re probably constantly thinking up ways to make your company work better. After all, efficiency and profitability are your first priorities.

One thing you’ve probably considered to achieve these goals is getting a business credit card. There are a lot of advantages to using a business card, but it’s important to understand that the protections that came with the CARD Act of 2009 don’t apply to this type of plastic.

Not sure if a business card is right for you? Take a look at the information below for more details.

How business credit cards fall short

Consumers have become accustomed to being treated much more fairly by their credit card companies since the passage of the CARD Act. However, what many don’t know is that the law only covers personal credit cards. This means that many of the practices that the CARD Act outlawed are still in effect with business cards.

For example, credit card companies are no longer able to raise a customer’s interest rates without providing 45 days’ notice. This is not the case with business credit cards – interest rates can be raised at any time. Fees are another good example of how business and personal credit cards differ. The CARD Act put caps on late and over-limit fees for consumer credit cards, but business credit cards don’t have such limits.

Another important factor is payment due dates; as a result of the CARD Act, you and I must be given at least 21 days to pay our credit card bills. But again, business cards can bill on whatever schedule they choose, which means that small business owners could have very little time to pay.

Why are protections so different?

Now that it’s clear how business cards differ from personal credit cards in terms of protections, it’s important to understand why this is the case. If the CARD Act was supposed to end abusive credit card practices, why didn’t it extend the same regulations to business cards?

Credit card companies argue that business lending is inherently riskier, and since they often give higher limits to business cards, they need to charge higher interest rates to cover the increased likelihood of default.  This makes sense at first – riskier borrowers pay higher rates – but almost all business credit cards require a personal guarantee. This means that even if the business fails, the person who signed for the card (typically you, the owner) is still on the hook for the debt. So whether that’s the actual reason, we can’t be sure.

In any case, while many issuers have voluntarily begun to extend more protections to their business card customers, some have been slow to get on board.

Don’t write off business cards too fast

While it may seem that business cards should be avoided given the few protections they offer, don’t be too quick to write them off. There are still lots of advantages to getting a business credit card, as long as you’re careful to pay on time and avoid overspending. For example, business credit cards generally offer:

  • The ability to separate business and personal spending by using a separate card just for your corporate costs
  • Higher credit limits
  • Slightly lower interest rates
  • Employee cards
  • Business-friendly rewards like office supplies and travel

And even though credit card companies aren’t required to follow the CARD Act provisions, many provide at least some protection. Check with each issuer and card to see the terms and make sure you aren’t surprised.