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To Franchisees: Be Wary of Using Company Credit Cards

by Ed Teixeira

When starting up a new franchise, odds are the new franchise owners will be solicited by credit card issuers. Franchisees need to be cautious when it comes to the use and control of company credit cards.

According to a Federal Reserve report, 83 percent of small businesses used credit cards; 64 percent used small business cards, and 41 percent used personal cards as of 2009. In the same report, the Fed stated that the small business credit card represents a fairly recent credit card product innovation and the market for it has grown considerably since the mid- to late 1990s.

If you’re a new franchisee operating under a new corporate entity, odds are you’ll be solicited by any number of firms that issue credit cards. Although having a company credit card, with the various reports that you’ll be able to access, can be tempting there are several reasons you should be cautious.

Facts to be Aware of Regarding Company Credit Cards:

Spending limits for these cards tend to be higher compared to personal credit cards since business owners use them more often. This higher spending limit can be tempting if cash becomes scarce.
Small business credit cards typically require a personal guarantee, which means that both the company and the guarantor would be responsible for an unpaid balance. This is no different than the case with a personal credit card.
Since credit card companies calculate interest rates based in part on risk, a new franchisee may have a relatively high interest rate. Usually the rate of interest is very low during an introductory period then increases.
The new regulations and protections under The Truth in Lending Act that apply to personal credit cards will not apply to business credit cards.

Some Advice Regarding Company Credit Cards

Consider using a personal credit card for your business by obtaining a second personal credit card for business use. Most personal credit cards include some reports on card activity.
A personal credit card will entitle you to protection under the Truth in Lending act.
Chances are the spending limits on a personal credit card will be lower compared to a company credit card. This could prevent some unintended use.
Don’t provide company credit cards to your employees. An employee will be more cautious in their business expenditures when getting reimbursed for their expenses than when using a company credit card.

When starting up a new franchise credit card issuers will actively solicit your business. Carefully analyze your options before accepting the offer for a business credit card. Keep in mind that a business credit card will not provide the same protection as a personal card.