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Credit Cards Now
Even Riskier for Small Businesses; Better Solutions to
deal with Cash Flow Challenges include Professional
Services Provided by United Capital Funding Corp.
According to a recent online article, small businesses
who in the past relied primarily on business credit
cards for capital are using a strategy that may be
riskier than in the past.
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It is quite common for a small business to use
either business or personal credit cards [or a
combination of both] as funding or financing tools to even out cash
flow, make major purchases on, and serve as a
cash management tool. However recent changes
illustrate why the use of credit cards as an
alternative to business lending and commercial
sources of money, might
backfire and actually work against the small
business and the owners of the firm.
The article mentions that several banks,
including Capital One are now beginning to
report to the 3 major credit bureaus information
on business credit cards use. Why is this
significant? Because for the first time, the use
of these business credit cards for business
finance purposes will be reported
on personal credit reports of the owners of
small businesses. |
As noted in the article. “Capital One is the
first large issuer to start reporting business
credit card accounts that are in good standing
to the consumer credit reporting bureaus. And
even if the small business owners deem the
practice unfair, it is legal.” The article goes
on the note that “Issuers can report business
credit card usage to consumer credit bureaus as
long as they have the business owner’s
authorization to check their personal credit.”
Of course, consumers usually grant that right to
the card issuer when they apply for a credit
card. Otherwise, it is a pretty safe bet that
they will not be approved for the card. So this
is pretty much a Catch 22 situation. |
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The author correctly notes that “business cards
can be a valuable cash management tool for small
business owners”. She also mentions that new
rules going into effect February 22, 2010 [known
as the CARD Act, short for The Credit Card
Accountability, Responsibility, and Disclosure
Act of 2009] will only make relying on credit
cards as a primary funding vehicle for a small
business even more risky.
The CARD Act, signed into law on May 22, 2009 by
President Obama, limits when issuers of consumer
credit cards can increase interest rates and
bans billing and payment practices that the
Federal Reserve call “unfair and deceptive” . A
White House Press Release dated May 22, 2009,
called this Act “a turning point for American
consumers and ending the days of unfair rate
hikes and hidden fees.”
However, what is not commonly known are the
following other changes impacting cash flow
funding for small business
owners, that are due to go into effect February
22, 2010;
1. Personal liability. The
author notes that “most, if not all” business
credit cards include a personal liability waiver
in their terms and conditions. By opening and
using the card (albeit to possibly advance
funds), the user agrees that if the
account becomes delinquent, the issue can come
after the personal assets of the user for the
balance owed. This would include any charges
made by employees of the business that were
designated users of the card. So as a small
business owner, it is imperative that you
carefully control and monitor usage of all
credit cards.
2. CARD act immunity. The
changes in the CARD Act do not apply to credit
cards used for business purposes, according to a
source quoted in the article. As a result,
credit card issuers can continue to hike
interest rates on credit cards issued to and
used by businesses. As of February 22, 2010,
they are not allowed to increase interest rates
for existing balances on consumer credit cards.
3. Impact on Personal credit.
Currently, the article points out that
“currently, most issuers do not report business
credit cards to the consumer credit reporting
agencies.” They do, however, report the accounts
if they become delinquent. So a potential hit to
the personal credit scores of the owners of a
business is a real concern. |
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Small Business Funding with United Capital can
be a much better solution than Credit Cards |
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With the increased risk of using credit cards to support
cash flow funding in a small
business, the professional services offered by
United Capital Funding Corp. are now even a more
attractive choice for the fiscally savvy,
healthy business in the manufacturing, service,
staffing, distribution, technology and
professional services sectors. United Capital
[www.ucfunding.com] is the leading professional
Accounts Receivable funding, and AR management
services based firm in the United States today.
Established in 1997, United has successfully
partnered with entrepreneurial firms with annual
revenue from startup stage to over $50 Million,
including small business funding.
With clients in over 34 states, United possesses
the financial resources to serve firms seeking
to improve their cash flow and reduce costs. |
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United recently recorded a milestone in 2009
when it exceeded $1 Billion of cumulative
invoice factoring and funding of clients since formation in 1997.
United provides working capital to
entrepreneurial businesses via factoring, or the
purchase of commercial Accounts Receivables.
United provides capital without the owners of a
business being exposed to personal liability,
unlike the case with a business credit card. In
addition, professional fees are not subject to
increase or change, once the business has been
approved by United. With United’s no cost
application process, a business owner can get an
answer within one business day from applying.
United is headquartered in the Tampa Bay area,
and also has regional offices in Nashville.
Additional information on the specialized
business financial services provided by United,
including invoice factoring, Accounts Receivable
management, and working capital are available
online at their top rated Google website;
www.ucfunding.com; via email at
mark@ucfunding.com; and by telephone (877)
894-8232. |
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Small Business cards Now Carry Sizeable Risk,
by Alexandra Todorova, December 17, 2009
Summary of The Credit CARD Act,
http://www.creditcards.com/credit-card-news/credit-card-law-interactive-1282.php
http://www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders
Gene Truono, managing Director, consumer
regulatory compliance banking practice, BDO
Consulting. |
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