Friday, January 18, 2013

Business Credit Cards: Good for Business?

When someone is business credit card shopping it pays to shop around. This is because the credit cards are managed by the credit card company and not the institution. The financial institution may have their name on it, but that’s just branding. I spent 15 years as a branch manager working with businesses. At no point in my career could I call the credit card company with which we were affiliated to ask them for concessions for a business client. Once in a while I could get a late fee waived, but as far as personal guarantees, interest rates or credit lines, I had no say in that. Rates and lines of credit are determined through a matrix that combines the credit rating of the business owner with their ability to pay from the business’s income.

Yes, they are looking at the personal credit rating of the owner, not the business. I could not tell you how many times I have had business owners, even those who are just getting their business started, tell me they want a business credit card based on their business without having to give a personal guarantee. Sure, Microsoft or Ford Motor Co would not have to qualify based on their personal credit rating. But these are sophisticated and dynamic multi billion dollar businesses. A sole proprietor or small S Corp owner in a business with a gross annual revenue of less than a million dollars who applies for a credit card would absolutely be judged for credit based on their personal credit scores. These constitute the majority of small businesses in the country. (In a 2007 economic census, there were 6,049,655 businesses in our country. Five and a half million of those had less than 20 employees.)

Small banks and credit unions contract with large card issuers from Bank of America, Chase, Citi, Card Member Services, etc. These institutions are referred to by the card issuing companies as “Member Banks” or “Member Institutions.” The card issuers work with their member institutions to negotiate underwriting criteria, terms and rates for the new branded card. As a general rule, your branch manager, that manager’s regional manager, and most likely the district or retail VP in charge cannot change the terms of a business credit card.

Financial institutions can change issuers and negotiate a better overall card program if they are not happy with the deal they have from their present issuer. Today there are fewer issuers due to consolidation in the business. Bank One was a major card issuer with member banks all over the U.S. Now, they are part of Chase. MBNA issued millions of cards nationwide for years and now is part of FIA that is owned by Bank of America. With fewer issuers, it is hard to get a good deal and harder to negotiate because of narrow competition. Due to the volume of credit cards issued by credit union card programs, CU’s can often negotiate some very good deals for their members.

The small business owner’s best bet is to shop on the Web or shop their credit union for the best deal. There are a variety of low cost card issuers with which credit unions work; often offering smaller fees and slightly better rates. As credit unions are not for profit businesses without shareholders clamoring for higher profits, they can negotiate good deals for their members. Small business owners will not be able to avoid the personal guarantee requirement, but they can look for a card that best suits their business’s needs.

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Our next free financial workshops:

Credit Myths and Repair Workshop  Free - Open to the public
Wednesday Jan. 23rd at 6:30 PM at the Meriwest Credit Union Main Office 
5615 Chesbro Ave
San Jose CA 95123
Please RSVP with  or call at 408-365-6328

Tax Law Changes and Updates for 2013 - Open to the public

Saturday Feb. 9th at 10 AM at the Meriwest Credit Union Main Office
5615 Chesbro Ave
San Jose CA 95123
Please RSVP with or call at 408-365-6328

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