New small business credit cards? Here’s why you’ll want to think twice from this point forward…

• Credit Card Reform Not Applicable
  The fact that we finally got credit card reform in this country is a major win for consumers. Although most banks have already became compliant over the past few months, next Monday the reform will officially go into effect. While this is great news for your personal cards, it’s bad news for old and new small business credit cards. Why? Because they aren’t included in the reform. That means they can still pull the ol’ interest rate bate ‘n switch on a small business credit card.
  
  
• Small Businesses Are Categorized As Riskier
  Thanks to all the economic turmoil over the past couple years, new small businesses are being scrutinized more than ever when it comes to giving them credit. If you are a sole proprietor or recently formed an LLC or corporation, it’s considered to be an especially risky proposition. However there’s good reason for creditors being skittish. Take Advanta… they were the second largest issuer of small business credit cards in the United States. However in 2009, a staggering 1 out of every 5 accounts were in default, now the company is bankrupt. All of the other small business creditors suffered brutal losses on these accounts too.

• Lower Credit Limits Than Personal Credit Cards
  Due to the extreme risk associated with small businesses, even if you can get approved, the odds are that the credit limit will be dismal. This is especially the case for new small business credit card applicants, since new companies are considered to be an even higher risk.

• Interest Rates Are Much Higher Than Before
  In the past when times were good, some small business credit cards actually had interest rates that were lower than what was available on most personal cards. Advanta (as discussed above) was notorious for doing this, however now that they’re bankrupt, that train has left the station. I have several American Express cards – one of them a small business card I’ve had several years – and even with my perfect credit and zero debt, my interest rate more than doubled on it! So it doesn’t matter how good your credit is… we are all being affected.

• You Will Need To Personally Guarantee The Credit
  Unless you have an established corporation or business entity that has successfully been using credit for years, you will have to make a personal guarantee to get a new small business credit card.  That means it will be under your Social Security number – just like a personal card is. However unlike a personal card, since it’s still technically a “business” credit card so you will not be protected by the recent credit card reform.

Are there any alternatives to new small business credit cards?
For now your best bet is to probably use a personal card. If the purchases are for your new small business, you can still write them off. What I decided to do was open a personal card and use it exclusively for my business, that way I don’t have to sort the transactions.

For this purpose, right now I highly recommend the AmEx Blue Sky card. Sure, I do advertise AmEx cards on this site, but take a look for yourself at this card and you’ll see why it’s an honest recommendation. Myself and others have had great luck with getting high credit limits and the rewards can be beat with it. There’s no annual fee either. For a special promo signup offer, check out my personal review of the American Express Blue Sky.