Business Credit Cards – What About Them?

Business credit cards are something you may not want to have.  I have students asking about establishing business credit and should they get a business credit card to help.   It’s a myth. As a small business, real estate investor, or general entrepreneur you don’t have a prayer of establishing “business credit.”  The truth is that you will always sign personally for any “credit” your business gets.

The major competitor I had in do-it-yourself asset protection packages went bankrupt a couple years ago. (Beware!  His products are still out there being sold by a half dozen groups. The products are out of date and there is no support – in spite of what you are told.)His company was a ton bigger than mine. It was doing tons of seminars, and the back end sales were huge (ruthless). He had signed personally for all of the company’s  business credit cards. That’s the only way you will ever get a business credit card.When his company went bankrupt, he was on the hook for over $10 million. NOT HAPPY! (Not a good asset protection technique either.)

You actually shouldn’t have business credit cards. They are dangerous. Just use a personal card for everything and then pay it each month the way the IRS wants you to.

Your personal credit card is governed by the Credit Cardholders Bill of Rights, but those laws don’t apply to business credit cards. BIG RED FLAG!  You will lose a lot of protection.

Business Credit Cards Rules are Different

Business credit cards are subject to the whims of the credit card company.The interest rates can be raised at will, even retroactively.Billing cycles can be changed at will. The rules just aren’t the same at all. The real threat a business card represents is the liability of fraud.You lose your card, and you are toast. With a personal card you are liable for $50, but with a business card there is no liability limit.Y ou’re stuck, as a business and personally, because I will guarantee you have signed personally for the card.

So, don’t use business credit cards.Use a personal card.You will charge everything (personal and business) on the one card.But wait, you can’t comingle money and expect your corporate (LLC) shield to protect you.Comingling money is the number one no no. You’re not comingling money by charging the card. How you make the payment to the card is the issue.

When you get your credit card statement, go down the list and check each charge.(You should always do that anyway.) By each charge, write whether it is business or personal. In my case there are a number of companies, so I have to designate which company the charge applies to. Then add up the business and personal charges. Enclose two checks in the payment envelope; one from your business account and one from your personal account. The credit card company will cash each check and apply it toward the monthly bill. Sometimes we write half a dozen checks and put them in the same envelope.

The IRS actually wants to see the money coming out of each account. If you do it that way, there is no question you are not commingling money. Your asset protection shield is safe. Yes, you could cut one check to the credit card company and then reimburse yourself from your company, but just do the multiple check thing. You can follow the same concept if you pay online.You now have the protection of a personal card, your asset protection shield is intact, and the IRS is happy. Don’t you love a happy IRS?

By Lee R. Phillips