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To Franchisees: Be Wary of Using Company Credit Cards

Guest post by: Ed Teixeira

Article Overview: 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.

To Franchisees: Be Wary of Using 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 you're a new franchisee operating under a new corporate entity, odds are you'll be solicited by any number of firms that issue credit cards. Although having a company credit card, with the various reports that you'll 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 scarce.

• 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.

• Don't 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.

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Article Tags: credit card issuers, credit cards, franchise owners, franchisees



Related Forum Posts
What is your age - Hi there, Life is not dull. It is amazing, how one thing can lead to an entire different subject. It began with the age question. Finally it referred to 'Credit Cards'. I was interested to know, the age groups involved in the forum. It indicates that most of the users are between 20 - 35 years old. I am sure there are some visitors who are in the older group. Let us have your vote. Kindest Regards, Beat "Unlock People's Potentials!"
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!
Building credit - Credit is like reputations, I suppose. Takes a lifetime to build, and only a second to destroy.
Marketing and PR ideas related to a Credit Organization - Hello Everybody! I would be very grateful if you suggested some PR and Marketing ideas for a Credit Organization which target market is poor public who live in village and haven't any access to the internet. Thanx in advance
Offer Credit instead - I'm not sure if ChrisH was referring to this but i'll state it more expicitly .. Charge upfront and offer a refund of double the value back in "Credit" towards your Product or Service you have for sale at the end of the event.


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