Transferring a balance from a business credit card to a 0-percent personal card can help you save money and give you more protections – just make sure your utilization doesn’t spike.
Dear Your Business Credit,
I have about $10,000 in business debt from my year-old startup and am thinking of doing a balance transfer from my business credit to my personal one.
I have gotten a 0 percent balance transfer offer, which would save me a lot on interest, but it’s on a personal card.
What are the pros and cons of moving the debt to a personal card? – Carrie
Business cards offer certain benefits that personal cards don’t always give you, such as higher credit limits and rewards tailored to the types of purchases businesses make, like office supplies.
If you use a business card, you can start building up business credit, too.
See related: The best business credit card perks you’re probably not using
A balance transfer can save your business money
However, there could be some benefits to transferring the debt to your personal card in this case.
For one thing, as you mentioned, you could save money on interest.
In a small startup on a tight budget, even $100 a month that you save could be re-deployed toward something you need. That’s not a small factor to consider, given that many small business owners self-finance their startups.
Personal cards offer more protections versus business cards
Consumer cards also offer more robust cardholder protections than business cards.
The protections that come from the Truth in Lending Act and the Card Act of 2009 do not apply to business cards.
- With business cards, card issuers can raise rates on existing balances, bill on varying dates of the month and allow you fewer than three weeks to pay bills, unlike personal cards.
- All of these practices are not allowed with consumer cards under the Card Act.
- Business cards also lack the $25 cap in late fees.
If you have uneven cash flow in the business, all of these factors are worth noting. You could be better off in the long run with a consumer card.
Personal card consumer protections against fraud
Consumer cards also offer more protections against fraud. Even business cards that voluntarily offer the zero liability that consumer cards are afforded under the law may have exceptions in the fine print.
With fraud skyrocketing, this is not a small consideration. I lost several business days’ worth of work time dealing with a fraud on my business card in which the issuing bank was far less helpful than I expected.
Balance transfer considerations
Of course, you do need to think about your credit utilization if you transfer business debt to a personal credit card.
Credit utilization – the amount you have borrowed compared to your credit limits – is the second most important factor in credit scoring calculations after making on-time payments.
High credit utilization can hurt your credit score. That can work against you if you want to make a major purchase that requires credit, such as buying a home.
Using a personal card for business purposes
If you do opt to use a personal card for business, be very careful to use it only for business.
It is important to maintain the separation of business and personal expenses if, for instance, you operate an LLC.
See related: Using personal card for work expense: 8 tips
You could lose the protections of the LLC in a lawsuit if someone “pierces the corporate veil” and is able to show that you and the business are essentially one entity.
It is also important to maintain this separation in the event of a tax audit. Otherwise, it could be hard to prove some of your expenses are for business.
When you run a small business, it’s important to make sure the financial tools you use work for you.
There isn’t always one right answer. When figuring out which solutions are best, taking a holistic view toward the business and your life will guide you to the right one.