Don't Get Personal When Selecting a Business Credit Card

It happens every day. Consumers are bombarded with attractive offers to sign up for new credit cards. Businesses—including physician practices—find themselves in the same position.

According to David Goodman, vice president of communications for Advanta Corp., the small business credit card market is large and growing. Business credit cards can help physician practices simplify bookkeeping, keep business expenses separate from personal expenses, earn valuable rewards, and protect themselves from fraud.

“There are some newer business cards that are hybrids,” explains Curtis Arnold, founder of CardRatings.com. “They allow a small business owner to float purchases for 60 days. That can help you manage cash flow. And rebates are huge with a small business. There are tremendous benefits there.”

The key, however, is selecting the right card to meet the needs of your practice.

Don’t get personal

Gerri Detweiler is the co-founder of BusinessCreditSuccess.com, a company that teaches businesses how to leverage business credit to get major credit cards. She points out that while the rewards and interest rates on business cards are important, the first thing she asks business owners to consider is how a card might affect their business and personal credit ratings.

When you apply for a business credit card, the decision of whether or not to give you that card—as well as your credit line and interest rate—is usually based on the business owner’s personal credit rating. As such, many business credit cards will then report activity on the owner’s personal credit report. If you run a lot of your business expenses onto the credit card in order to take maximum advantage of the rewards, you could also be showing very large balances on your personal credit report.

“About 35 percent of your personal credit score is based on your payment history,” says Detweiler. “Another 30 percent is based on the debt you carry. So, even if you always pay your bills on time, if you carry a lot of credit card debt or max out cards for business use, that will appear on your personal credit report and hurt your credit score.”

The solution, says Detweiler, is to choose a business credit card that does not report your monthly activity to the personal credit agencies, thus protecting your personal credit score. Moreover, choose credit cards that report to business credit agencies, such as D&B and Experian. “The reason you want to do that is to establish a strong business credit rating for your practice,” she explains. “Then you’ll be able to better negotiate the terms and conditions of your business credit card.”

The art of negotiation

Detweiler suggests that the first item a physician might want to negotiate away is a personal guarantee. Otherwise, if any default should take place, or if a practice runs into problems and you fall behind on the bills, you—not the business—are personally liable. And that situation can occur more frequently than you might imagine.

For example, the rules of protection that apply to personal credit cards with regard to a lost or stolen credit card don’t necessarily apply to business credit cards. In addition, if you give an employee a credit card and they have authorization to use it, and then they misuse it, that’s not necessarily considered fraud. If your office manager has a card in his or her name and goes on a spending spree before leaving town, you’re probably going to be responsible for those bills because the manager was authorized to use the card.

“All card issuers are going to ask for [personal guarantees],” says Detweiler. “You can’t blame them. But as you develop your business credit rating and have more years of experience in your practice, you should try negotiating with card issuers to get rid of that.”

Employees benefit, too

Arnold explains that there are tremendous benefits in physicians using credit as a business owner. However, from an employee standpoint, it’s a nice perk to have. “It’s so much more convenient [for employees] because they don’t have to file expense reports,” says Arnold. “It gives them a sense of ownership in the practice.”

CardRatings.com offers these two reviews as a good place to start:

• The Customizable Advanta Business Rewards Platinum MasterCard® offers a zero-percent introductory APR on balance transfers for the first 15 billing cycles; 7.49 percent fixed APR applies thereafter. It also offers a personalized card, free cash back and travel rewards program options, and a convenient online application.

• The Discover® Business Card features a convenient online application, as well as zero-percent introductory APR on card purchases for 12 months. Earn a $100 cashback bonus when you apply. There is also a five percent cashback bonus on office supplies, two percent on gas, and up to one percent on all other purchases. The card also features fee-free purchase checks that earn cash back bonus to pay merchants who don’t accept credit cards.

Ed Rabinowitz is a veteran healthcare writer and reporter. He welcomes comments at edwardr@ptd.net.