December 16, 2009
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Business CC's Danger Zone For Owners, Pt.2
It's all in the fine print.So just how does the lender get the small business owner's permission to check his personal credit history. Typically most business credit card account's contracts (the fine print) contain a personal liability waiver. When the business owner uses the card the first time, he is essentially signing his name to accept responsibility for the credit card account. Therefore, if the account becomes past due, the credit card company has the legal right to pursue the personal assets of the business owner for the balance owed. Small business owners can really get hurt by the loophole especially if a company employee has access to the account and racks up some high dollar charges.
Some of you may be wondering how the new credit card reform legislation will affect the lender's activities relating to small business accounts; unfortunately, nothing. The new CARD Act does not regulate any aspect of the business credit arena creating a doubled edged sword. Small business owner's personal accounts will be given protection by the CARD Act which makes it favorable to use the card to finance the business. On the other hand, it also increases the debt ratio of the business thereby lowering his credit score and categorizing him as a higher risk. Despite the fact that the new law does not regulate business credit card accounts, a few of the major lenders say they will integrate it into the practices of small business accounts.
There's no doubt that small business credit cards are valuable tools for the owners because their terms are often better than traditional consumer card accounts. In the end, small business owners need to weight the pluses and the negatives of opening up a small business account prior to signing up for and accepting any card. But, either way you look at it, it would appear that if something should go wrong, your personal credit history and score is bound to be affected.