To Franchisees: Be Wary of Using Company Credit Cards
by Ed Teixeira
When starting up a new franchise, odds are the new franchise owners will be
solicited by credit card issuers. Franchisees need to be cautious when it comes
to the use and control of company credit cards.
According to a Federal Reserve report, 83 percent of small businesses used
credit cards; 64 percent used small business cards, and 41 percent used personal
cards as of 2009. In the same report, the Fed stated that the small business
credit card represents a fairly recent credit card product innovation and the
market for it has grown considerably since the mid- to late 1990s.
If youíre a new franchisee operating under a new corporate entity, odds are
youíll be solicited by any number of firms that issue credit cards. Although
having a company credit card, with the various reports that youíll be able to
access, can be tempting there are several reasons you should be cautious.
Facts to be Aware of Regarding Company Credit Cards:
- Spending limits for these cards
tend to be higher compared to personal credit cards since business owners use
them more often. This higher spending limit can be tempting if cash becomes
- Small business credit cards
typically require a personal guarantee, which means that both the company and
the guarantor would be responsible for an unpaid balance. This is no different
than the case with a personal credit card.
- Since credit card companies
calculate interest rates based in part on risk, a new franchisee may have a
relatively high interest rate. Usually the rate of interest is very low during
an introductory period then increases.
- The new regulations and
protections under The Truth in Lending Act that apply to personal credit cards
will not apply to business credit cards.
Some Advice Regarding Company Credit Cards
- Consider using a personal credit
card for your business by obtaining a second personal credit card for business
use. Most personal credit cards include some reports on card activity.
- A personal credit card will
entitle you to protection under the Truth in Lending act.
- Chances are the spending limits
on a personal credit card will be lower compared to a company credit card. This
could prevent some unintended use.
- Donít provide company credit
cards to your employees. An employee will be more cautious in their business
expenditures when getting reimbursed for their expenses than when using a
company credit card.
When starting up a new franchise credit card issuers will actively solicit
your business. Carefully analyze your options before accepting the offer for a
business credit card. Keep in mind that a business credit card will not provide
the same protection as a personal card.
© 2010 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at