Bank of America remains the most small business friendly major credit card issuer, according to CardHub.com’s 2013 Small Business Credit Card Report , which examines issuer policies relating to business-branded products in the post-CARD Act environment.
This landmark legislation – which has revamped consumer protections throughout the personal finance space since its Feb. 2010 enactment – inexplicably does not apply to business credit cards, despite the fact that card issuers evaluate personal credit standing when making business card underwriting decisions, report account information to users’ personal credit reports, and hold them personally liable for debt. Small business owners are therefore forced to get creative with their expense management as well as find banks that have proactively adopted the most important protections – such as rules prohibiting arbitrary interest rate increases and payment allocation practices designed to keep the most expensive debt on the books the longest.
The Regulatory Environment in 2013
BofA has sat atop that list for the past few years, as it remains the only issuer to have granted its small business credit cards each of the law’s 5 most important protections: rules prohibiting double-cycle billing, universal default, and unfair payment allocation; the guarantee that 45 days’ notice will be provided for key changes to account terms; and, most importantly, the assurance that increased interest rate terms cannot be applied to existing debt unless the cardholder is 60 days delinquent on payment.
In other words, BofA business credit card customers know they won’t end up paying more than they should as a result of shady accounting practices and can plan strategically without having to account for the possibility that their debt might suddenly become drastically more expensive overnight.
But that’s not to say other major issuers have completely dropped the ball. In fact, we’re seeing the competition gradually adopt additional CARD Act stipulations as well as become more transparent about their policies. Not only was 2013 the first year in which every major issuer was willing to be transparent about their policies, but this year also marks the first time that none of the major issuers offering business credit cards uses double-cycle billing or universal default. Additional issuers have also adopted both the 45-day notice policy and more consumer friendly payment allocation.
Hopefully, this reflects a growing recognition that the CARD Act should, and perhaps ultimately will, apply to cards branded for business use. There still remains a significant divide between Bank of America and everybody else in terms of interest rate policies. All of the other major issuers have retained the right to offer people a certain interest rate and then jack it up once users have incurred a balance.
Some 80% of small businesses used a credit card or a revolving line of credit from a bank for financing purposes in 2011, according to the National Small Business Administration’s 2012 Access to Capital survey. That’s a sizeable portion of the small business community at risk of sudden cost-of-debt increases.
Lucrative Landscape Offering Attractive Terms to Owners
Despite the regulatory imbalance, the current state of the credit card landscape offers a number of money-saving opportunities to savvy business owners who maintained above-average personal credit standing through the downturn. Remember, one’s personal credit is what issuers look at when making underwriting decisions – whether you’re applying for a business or personal card. And using a personal credit card for business funding purposes is actually recommended given that you’d be personally liable for business credit card debt anyway, yet wouldn’t benefit from the same selection of cards offering guarantees against arbitrary interest rate increases.
Those who prize simplicity and convenience can always use a card like the Bank of America Cash Rewards for Business MasterCard (0% on new purchases for nine months and 1-3% cash back on major spending categories), but you can obtain the best possible collection of low rates, lucrative rewards, and important consumer protections by opening a combination of the cards listed below.
Rewards – Initial Bonus
Ink Plus Business Card: Offers 50,000 bonus points ($500) for spending at least $5,000 during the first three months and does not charge an annual fee during the first year ($95 thereafter). Users also earn 5 points per $1 spent on telecom services and office supplies, 2 point/$1 at gas stations and hotels, and 1 point/$1 on everything else.
Club Carlson Business Rewards Credit Card: Offers 85,000 bonus points for spending at least $2,500 during the first 90 days. That can be worth up to 18 free nights at popular chains such as Radisson, Park Plaza, or Country Inn, depending on booking preferences. That’s more than enough to outweigh the card’s $60 annual fee.
Rewards – Ongoing Use
Capital One Spark Cash for Business: Every $1 you spend with this card earns you a full 2% cash back, regardless of the particular expense category the transaction fits into or how much you’ve spent within a certain timeframe. You also stand to get a $100 initial bonus for spending $1,000 during the first three months and another $50 bonus for signing up an authorized user. You won’t have to worry about the $59 annual fee until the second year either.
Financing – Balance Transfers
Slate Card from Chase: You won’t have to pay the standard 3% balance transfer fee or even an annual fee to get this consumer card’s 15-month 0% intro APR. You will, however, need to use a credit card calculator to make sure you pay down the majority of your balance before regular rates ranging from 11.99% to 21.99% take effect.
Financing – New Purchases
Citi Diamond Preferred MasterCard: Like the Slate from Chase, this consumer credit card does not charge an annual fee and offers 0% for well over a year (18 months in this case). It does, however, charge a 3% balance transfer fee, so it’s best used to avoid interest on upcoming big-ticket expenses.
There is reason for optimism on the credit card regulation front. Rep. Nita Lowey (D-N.Y.) introduced the Small Business Credit Card Act of 2013 to Congress on June 18. While it’s unlikely to pass given the current political landscape, the fact that there is at least initial support for such a bill is a good sign.
But until such legislation actually takes effect or more major issuers truly commit themselves to consumer protection and fairness, the small business community will have to continue cobbling together as best they can.