Newark Star Ledger
Sunday, August 01, 2004

Many credit-card companies are aggressively marketing to small-business owners with cards offering services and perks that match entrepreneurs' desires.

But strong as the perpetual need for cash flow is, credit cards must be used as prudently for business as they should be when pulled out for personal use.

Read the small print before accepting any card.

"Because a credit card is created and specifically marketed to small businesses doesn't mean it offers the best rate, and it may contain strict penalties for late payments and going over a line of credit," says Catherine Gordon, a senior financial analyst with CCH, a Chicago-based provider of financial information.

Late payments can jack up even the lowest single-digit, customer-grabbing interest rate to 20 percent. "If you want to use credit cards, you have to be very careful," warns Charles Ou, senior economist with the U.S. Small Business Administration's Office of Advocacy.

More small-business owners are choosing business credit cards. The number of small-business cards climbed to 10.2 million last year, up from 4 million in 2000, according to the Nilson Report, a credit-card industry publication.

Small-business owners are using credit cards mostly for travel (63 percent), office supplies (53 percent) and entertainment (51 percent), according to an American Express survey by International Communications Research. Computer and wholesale purchases also are charged on more than 40 percent of business owners' credit cards, while one in four owners charge business and professional services.

A competitive banking market has pushed many financial institutions toward additional sources of income and product development. Small-business card programs are one popular result.

The largest card companies, VISA International, American Express and MasterCard International, all offer revolving credit cards with perks including points earned toward travel and merchandise and discounts on gas, rental cars and hotels.

Used judiciously, small-business credit cards provide an interest-free 30-day loan if paid off each month, and an organized way to separate and track business expenses for tax filing. Used irresponsibly, they can push struggling entrepreneurs deeper into debt.

"If you get a month's float without paying interest, it's great," says Ira Rosenbloom, CPA and managing director of Mintz Rosenfeld & Co., a Fairfield accounting and consulting firm that specializes in working with entrepreneurs. "But it takes a very special and disciplined entrepreneur to play the game and get the mileage and perks," without incurring debt along the way.

To choose the best card for your business, start with these tips from Bankrate.com, a consumer finance Web site.

Compare annual percentage rates, or APR, which measure the cost of credit on an annualized basis. If you don't pay the balance in full each month, this is the rate that kicks in to set finance charges.

Look closely at the penalty charges for paying early, paying late or going beyond credit limits. They can add up.

Compare annual fees. Many charge a few, though some cards offer no fees for the first few months of membership.

And, true, the perks and points may be attractive, but make sure they are ones you will actually use and will save you money.

Remember, even the best credit-card interest rates are higher than most bank loans. Check out all the options before relying heavily on credit cards to finance business expenses.

"While it may be tempting to take what often seems like a simpler route of using a credit card for financing, small-business owners should explore as many financing options as possible," Gordon says.

Ou puts it this way: If you think credit-card borrowing is too expensive for your budget, don't do it.

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