Understanding Biz Credit Cards

Here is a special bonus for our readers; the Credit Union Guy gets real about Business Credit Cards with Erica Sandberg of CreditCards.com.

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 gmeyer@meriwest.com  or call at 408-365-6328

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

Saturday Feb. 9^th at 10 AM at the Meriwest Credit Union Main Office

5615 Chesbro Ave

San Jose CA 95123

Please RSVP with gmeyer@meriwest.com or call at 408-365-6328

 

Selecting a Checking Account for your Business

Business owners have special needs when it comes to their business checking account. When one is opening a new business or considering a change in financial institutions, it pays to look beyond the standard commercial bank and do some extra research on a type of financial institution that has been around for years, the credit union. Here at Meriwest Credit Union we have been involved in business banking and lending for many years.

There are a number of questions that must be asked when you are vetting a new home for your business checking account. How will you use your checking account? Will you be writing checks or using online banking to pay bills and vendors? Using online resources can save you some money with some institutions. Are you able to designate people, such as a bookkeeper, and give them a personal secure log in account to do business or transact inquiries on the account?

What are the monthly fees and how do you get them reversed or cancelled? Is there a minimum balance requirement? Can that requirement be met by depositing funds in a savings/money market account?

Does the bank offer overdraft protection? This is often a deal breaker for a lot of business people. The best sort of overdraft protection is a line of credit associated with the account where dollars are transferred off the line of credit should a deposit need to be made when a check is clearing. Some institutions will allow you to overdraft the account slightly, while charging a significant overdraft fee of $35 or higher. The worst is what I refer to as a “Call and a Prayer Overdraft Protection;” the bank calls you to tell you that checks are clearing and you pray you make it to the bank on time to make the deposit for them to clear. This is very stressful and very expensive as they will charge you to pay those items provided you make it to the office to make the deposit on time. If you don’t make it, your checks will be returned and your time was wasted.  

More questions business owners should ask about a prospective financial institution: How convenient are the offices? Can you bank electronically? What are their hours? Do they open Saturdays?

An important aspect of this is the customer service the institution gives you. When you walk in to get information, are you recognized right away as a new client and greeted? Or are you ignored? Does the sales person strive to give you a complete run down of the information you need to make your decision or do they shove brochures at you? Does the staff appear to be well informed and competent or slightly confused and embarrassed by it? You can tell a lot about an institution from walking in on a Friday night an hour before closing and watching the flow of customers. Observe the tellers, are they competently going about their work or does a supervisor have to help with their transactions? Are customers in line pleasantly waiting or impatient? Impatience may be a signal that long waits in the teller line are common in that institution.

A few years ago, credit unions started offering business accounts to small businesses in their communities. Among the advantages of a credit union over a bank is the concept of shared banking. A business owner can go to any shared branch of any credit union across the country and make a deposit to an account at their credit union. Another advantage is that credit unions typically have fewer fees and those fees that are charged are often less than their bank competitors.

A business owner’s time is precious. It is important they spend a bit of time examining and shopping institutions they may be considering for their banking. This way they can save a lot of money, time and hassle in the future.

Meriwest Credit Union does offer a free business checking account. See our Business Banking link here to view our checking account offers for small business owners. 

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Free Homebuying Workshop

Home Buying Strategies for the Current Bay Area Housing Market

Thursday, September 13, 2012 - 6:30PM

Meriwest Credit Union Monta Loma Financial Center

580 N. Rengstorff Ave., Mountain View CA 94043