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                 Ask The Experts

         Credit Woes M
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           “Small-business owners
           have bec...
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Ask the Expert: Credit Woes (Dance Retailer News)


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Dance Retailer News' Ask the Expert Column on credit-related questions.

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Ask the Expert: Credit Woes (Dance Retailer News)

  1. 1. 26_Experts_DRN0310.qxd 2/11/10 3:49 PM Page 26 Ask The Experts Credit Woes M Traps to beware of when using any dance retailers rely on credit cards to finance their operations. With rewards such as cash back or points that can be have come to rely heavily on credit cards when strapped for cash. DRN spoke with Molly Brogan from the National Small Business Association applied to additional purchases, credit cards can be a (NSBA) to find out the pitfalls to be aware of when credit cards to fund your business helpful payment method for ordering supplies, using credit cards to finance your business. financing marketing initiatives or replenishing BY JACQUELINE DURETT inventory. The trick is paying it off in full each DRN: A lot of our readers used credit cards last month. year when cash was in short supply. Is this Lately, a new variable has emerged. Many business common among small-business owners? What owners have seen rising interest rates and shrinking are the advantages of using a credit card to fund credit lines for both their business and personal operations? credit accounts—which is dangerous for those who MB: About 60 percent of small businesses in the U.S. rely on credit cards for financing, according to a 2009 survey conducted by NSBA. Many retailers use credit cards to purchase supplies, cover travel Junior Full Page expenses or buy additional inventory. 7 1/2” x 10” The main advantage is that it is relatively easy to get a credit card in the business’ name—much easier than acquiring a traditional loan. DRN: We’ve noticed that a lot of new small-business credit cards have hit the market recently. What is the difference between these and personal cards? MB: Many credit card companies market “small-business” cards, but in reality these cards are not much different from personal card accounts. Small-business cards usually carry a larger limit, but not much beyond that; it is basically just a marketing tool. Many people believe it will help them leverage their purchases and receive better discounts, but I don’t think it makes a big difference, personally. DRN: What dangers do business owners need to be aware of when using a small-business card? MB: Business cards hold the same dangers as personal credit cards, such as changes in terms and variable interest rates, etc. In May 2009, Congress passed a bill intended to protect credit card consumers from these types of unfair practices. Unfortunately, this bill does not cover small-business cards. Small-business cardholders are still subject to any term changes made by credit card companies—skyrocketing interest rates, slashed credit limits and extra fees—and these have become rampant in the economic downturn. Because of this loophole, small-business owners have now become a prime target for credit card companies looking to profit from deceptive and unfair practices. DRN: Since there isn’t a big difference between personal and business cards, would you say that it is smarter, in some cases, to use 26 DanceRetailerNews.com March 2010
  2. 2. 26_Experts_DRN0310.qxd 2/11/10 3:49 PM Page 27 “Small-business owners have become a prime target for credit card companies looking to profit from deceptive and unfair practices.” —Molly Brogan, NSBA a personal card rather than a small-business card? MB: I think it can be. There is a big gray area surrounding personal and small-business cards. A card with the business’ name on it is still secured by the owner’s personal credit rating and can have lasting effects on their personal credit score. The difference is that if it contains the business’ name, then it isn’t covered by the legislation. DRN: Do you recommend having two credit cards in order to keep your business and personal expenses separate? MB: I think it is easier for accounting purposes to have two separate credit cards. But at the end of the day, a small-business owner has to determine which card is getting them a better deal—if it’s their personal card, then that’s what they should use, despite the increased difficulty it presents for accounting. DRN: There are so many personal and small- business credit cards on the market to choose from, and it seems they all offer different 1/3h perks. What should a business owner look for 6.5” x 6 5/8” when choosing a card? MB: The first priority is reasonable interest rates and fees, including balance transfer fees. Any other perks are secondary and depend on what the business owner finds beneficial. For many, getting cash back or receiving reward points that they can use to make purchases is preferred. For others, travel rewards may help them fund a vacation. However, nothing replaces a fair and reasonable interest rate. DRN: What resources are out there to help business owners make decisions about how to finance their business? MB: There are many counseling resources available through the Small Business Administration (SBA), and it also offers some loan programs for small-business owners. Find your local SBA office at www.sba.gov/localresources. Other community organizations, such as a local chamber of commerce, offer loan or funding options for local businesses. Jacqueline Durett is a freelance writer in New Jersey. Molly Brogan has been the vice president of public affairs for the National Small Business Association since 2003. The NSBA is based in Washington, DC. March 2010 DanceRetailerNews.com 27