Personal Credit Card Usage for Business May be More Pain Than Relief
The number of people using their personal credit cards for business purpose is growing and that might just prove to be a disastrous financial decision given the risk of mixing pleasure with business. The National Federation of Independent Businesses has found that the percentage of small business entrepreneurs using their personal credit cards to incur business costs have gone up from 42% in 2009 to 49% in 2011. Alternatively, the percentage of small business owners using business cards to fund their venture has dropped from an erstwhile high of 64% to 59% at the moment.
However, there are several drawbacks of following such borrowing trends that may bring in unwanted financial crisis in a small business owner’s life.
Credit ‘CARD Act’ and soaring interest rates
The Credit CARD Act is a reformatory legislation that was implemented in response to the financial downturn of 2008. It is the acronym of the Credit Card Accountability, Responsibility and Disclosure Act that was made into law in 2009.
The objective of this law is to defend consumers against unexpected as well as drastic rise in the interest rates of the personal credit cards, unjust monthly payment allocations and other credit card issuer centric modifications in the loan agreement. As already said these reforms are applicable only in case of personal credit cards and in no way applies to business cards.
Drawbacks of using personal credit card for business purpose
There is no doubt that you may be tempted to use your personal credit card to fund your business, however, you need to be careful about the hidden loopholes in the Credit CARD Act that may get you knee deep in debt. So, before making business purchases with your personal credit cards, just make sure that you’ve gone through the following points:
- Accounting glitches – One of the major drawbacks of using personal credit for business purpose is that you may face a lot of problem in managing your company’s accounts. On the contrary, you may be well off with the business cards since they have a host of accounting advantages that’ll help you to make your company’s budget, report all your business expenses correctly and file your taxes without any stress. However, personal credit card lacks all these features that might prove to be more of a pain in the neck than a legal liability.
- Sudden APR hikes – Your creditor may increase the rate of interest charged on your personal credit cards all of a sudden without apprising you beforehand, if they find that you are using those cards for commercial purpose. Primarily, your creditor can raise the interest rates on the cards on grounds of them being used for business, commercial or agricultural reasons.
As a result, the annual percentage rates or APRs on the personal credit cards will increase since creditors enjoy immunity while hiking them under the CARD Act. Due to this fact, you may lose on the consumer incentives provided to personal credit card users. This may lead you to financial troubles and you may start losing your monthly revenue over increased amount of monthly interest payments on the bills.
In this case, you may even have to opt for credit card settlement or any other debt relief services so as to straighten up your finances and get rid of your financial woes.