Talk to Clark 1-4pm ET: (877) 87-CLARK or (404) 872-0750
advertisement
Looking for something on the site? Search for it here! Also see Clark's Greatest Hits
Sep 25, 2009 -- Special warning on business credit cards for entrepreneurs
RIP-OFF ALERT: Entrepreneurs are being cautioned to avoid signing up for or using small business credit cards. These types of cards will lock you into extra liability in spite of the Credit Card Holder Bill of Rights that goes into effect February 2010.
The initial liability comes because the small business is the signatory and has responsibility in the event of default. Yet there's a second level of liability to the individual that's specific to small business cards. The lender can do what's called "piercing the corporate veil." In plain English, that means if your business can't pay the bill, the bank comes after you.
The Credit Card Holder Bill of Rights does not offer any protections on this specific issue for entrepreneurs and small business owners.
You can expect to see a flurry of offers trying to lock you into a small business card instead of a personal card over the next several months. But you want the personal card instead.
Remember, you should be using a personal card for business expenses and simply paying the bill from your business account.
The Wall Street Journal reports that Chase is launching no less than four new small business cards to ensnare entrepreneurs. They'll tell you that you're being offered these cards because of your personal success and business acumen. But don't be fooled. Accept the compliment and shred the offer.
Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.
Avg. rating: N/A
What others are saying
Business Credit Card Liability
In several jurisdictions, the courts have found no personal liability for use of a business credit card inuring to the "Authorizing Signatory." Recognize I said only several jurisdictions, not all. This is an uphill battle. The courts have found the wording in the business credit card agreements violates or contradicts the Uniform Commercial Code. The UCC clearly states that a corporate officer, who signs an agreement/contract in his/her official capacity, is NOT signing personally. The wording, in most credit card agreements, is ambiguous at best, stating, "the Company and Authorizing Signatory are liable for transactions..." However, it does not say "personally liable" and is held to mean in the capacity of a corporate officer. Some courts feel, since the banks drafted the unilateral agreements and could have simply added that one word to clarify liability and did not, the business card signatory should not be held personally liable for the debts of the company.
I am certain in short time, additional words will be added to these business cc agreements to close this gapping legal hole.
credit cards
what if a person has a business credit card but has not a business? I see many people come into my shop and have a small business card and have no idea that is is just that. They like it because they get perks. Are these cards different than the ones your talking about?
Plastic = Debt and/or Overspending
I own 3 business, all on a cash basis with zero debt. Is it really worth risking your business and your families well being just to POTENTIALLY grow your customer base or profit margin? Dumb idea. Not to mention that you are spending up to 18% more with plastic than with cash.
Serve with excellence, tell the truth, and run a business you can afford (i.e., there is no such thing as manageable debt). Now that's the sure-fire equation for success!
What's the big deal?
We have "business" cards issued by Citi and recently had one card compromised by some scammers in CA. The guy actually made a physical card with our number and was driving around LA charging jewelry and salon visits (girl friends?) that totaled over $3000. Citi's computers flagged it as suspicious and we were called to verify the charges. When I told them the charges were bogus, they canceled the card and that was the end of it. We were not treated any differently because these were business cards, and we weren't liable for a penny of the fraudulent charges. It makes me wonder what all the fuss is about?
This is important because...
Small business owners are not looking for a way to dodge their obligations, we just want to have the same credit card protections that individuals get. If an employee's card number is compromised and thousands are charged fraudulently, am I to be held liable for those fraudulent charges just becuase this was a 'small-business' card?
Give me a break!
Any business owner who is concerned about personal liability deserves to be tanked anyway. Not only are we a generation based on entitlement, governmental subsidies and "financial protection", we are a generation of DEADBEATS who cry like infants when creditors insist on being paid. If your small business cannot operate on a cash basis to begin with, get out and let someone else have the corner.
No need for panic
Why the sudden panic? Almost every "business card" provided to the typical mom-n-pop small business requires a personal guarantee. Bigger companies often have UCC filings attached to their revolving credit agreements. If you don't pay, the banks will use the guarantees, personal or corporate, to try and get their pound of flesh.
Do what with my business credit card?
Since it is not safe to use a business credit card and I am going to use my personal card instead (& pay off ea. mo. with bus. $$), should I not even own a business card now? Should I close that business credit card account altogether?
Piercing the veil
Anyone who runs a business and all their advice on how to structure their finances from the radio deserves to have their corporate veil pierced. If you want protection from your business's creditors, get help from an attorney who knows the law. If you're running your business without incorporating it, there's no veil to be pierced anyway.
