small business credit cards.
When Rep. Nita Lowey, D-N.Y. introduced the Small Business Credit Card Act of 2013 to Congress back in June, she was attempting to right a wrong that has persisted since the original CARD Act took effect in October 2010.
The landmark law, which has increased transparency and bolstered consumer rights throughout the credit card industry, does not apply to credit cards branded for small business use. And while Lowey's bill has the potential to correct this oversight, it has only a 1 percent chance of being enacted, according to GovTrack.
The roughly 37 percent of small business owners who leverage credit card debt each year must therefore learn how to get by without important legislatively provided rights if they wish to achieve debt stability and avoid losing money. CardHub conducted a study analyzing the small business credit card policies employed by the nation's 10 largest issuers, and the five major takeaways are listed below.
1. Issuers Can Increase Small Business Interest Rates at Will
One of the most important protections afforded to consumers by the CARD Act is that which prevents increased interest rates from being applied to existing balances unless an account holder is at least 60 days delinquent on payment. Issuers can still use bait-and-switch pricing with business credit cards, however -- a fact that makes debt stability impossible to achieve. Without debt stability, small business owners cannot plan strategically or confidently allocate funds. Bank of America is the only major issuer that has extended the CARD Act policy against arbitrary interest rate increases to its business-branded cards.
With a general consumer credit card, issuers must allocate the amount of your monthly payment above
the minimum required to your most expensive debt. With a small business credit card, however, they can allocate payments as they please. That means if you transfer a balance to a business card that you also use for everyday spending, the balance with the highest interest rate will stick around longest, leading to more expensive finance charges. Only American Express, Bank of America, and Capital One have extended CARD Act payment allocation guidelines to their business credit cards.
5. Small Business Cards Also Offer Business-Oriented Perks
When it comes to expense categories like telecommunications services and office supplies, business credit cards offer by far the highest rewards earnings rates. They also provide helpful expense management tools and the ability to have numerous co-signers with customized spending limits.
The best strategy would be to open a business rewards credit card for everyday use as well as a 0 percent general consumer card for funding small business operations. This will give you the best of both worlds until Congress wakes up and starts passing new legislation, rather than filibustering and campaigning their terms away.
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.
Odysseas Papadimitriou is CEO of the credit card comparison website CardHub and the new personal finance social network WalletHub .