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It’s common for credit card companies to offer consumers extra rewards when they shop at gas stations and convenience stores, but few people consider things from the opposite perspective. In other words, what type of credit card is best for the hardworking businessmen and women who own gas stations and convenience stores?
The way in which proprietors approach funding and expense management is especially important these days given that the uncertain economy is limiting consumer spending, international politics is wreaking havoc on the oil markets, and fierce competition in the retail space is leaving independently owned businesses with little room for error.
While you may assume the answer to the above question to be obvious – business credit cards – putting faith in labels is one of the biggest mistakes that a small-business owner can make when it comes time to choose a credit card.
A Murky Regulatory Environment
Unbeknownst to most, there is a stark policy divide between business-branded credit cards and general consumer credit cards that can leave unsuspecting users financially vulnerable – both personally and professionally.
The landmark law, the CARD Act, that saved the consumer side of the credit industry from predatory, unfair pre-recession banking tactics does not apply to cards targeted to small-business owners. Among various other important implications, this means that credit card companies are still able to increase the cost of a small-business owner’s credit card debt without cause or warning. With consumer cards, on the other hand, they cannot raise interest rates on existing balances unless the cardholder is at least 60 days past due on payment.
As a result, it’s impossible to achieve debt stability when leveraging a business credit card for funding purposes. Without an accurate sense of how much your debt will cost, it will be difficult to allocate funds, hire new employees, and otherwise develop your business. Rather than strategically maximizing profits, you’ll find yourself at the mercy of credit card company executives.
This regulatory head-scratcher comes despite the fact that small-business credit card users are held personally liable for debt, just like any normal consumer. That’s right – business credit cards do not insulate your family finances from the vagaries of the economic climate and business cycle.
The Value of the Island Approach
While you may think the policy imbalance between business and consumer credit cards leaves you with no good options, not to mention increased pressure to succeed, it can actually serve as the impetus needed to overhaul your company’s financial repertoire for the better.
You see, there is no rule against using a personal credit card for business spending. But with that said, simply opening a consumer credit card and calling it a day won’t be sufficient either. No single credit card offers both market-best rewards and market-best interest rates, which means using a lone card – whether it’s ostensibly for business or personal use – would necessitate choosing between saving money on interest and lucrative rewards on everyday spending.
Do you really want to sacrifice value for a modicum of convenience?
The best course of action for any small-business owner is therefore a carefully targeted two-card strategy: utilizing a business rewards card for everyday expenses and a general consumer card for debt management. Undergirding this strategy is a personal finance theory known as the Island Approach, which entails isolating different types of expenses and transactions in order to amass the best possible collection of account terms.
In this instance, you’ll be able to take advantage of the unique expense tracking features and heightened rewards on office supplies and telecommunications services that small-business credit cards are known for, as well as the consumer protections and attractive zero percent rates that consumer cards can provide.
Because everyday expenses, by nature, should be paid in full each month, removing these charges from your revolving debt will also reduce your interest costs and give you a better sense of the sustainability of your spending habits (if finance charges show up on your everyday account, you’ll know you’re overspending).
Hopefully, this revamped expense management framework will add fuel to your profits without causing you too much inconvenience.
Odysseas Papadimitriou is an entrepreneur and founder of the personal finance websites, CardHub and WalletHub.
Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News for the Single Store Owner.