credit cards

Credit cards: Small-business vs. corporate?

Janna HerronDear Credit Card Adviser,
We are trying to get business credit cards for our employees but do not want to them to be personally responsible for the payments. Is it possible to get business credit cards in the company name, and then add employee names and the company will be the responsible party for payment in full each month? Our CFO thinks we must use an individual's Social Security number and the employees will be personally responsible. Who is correct?
-- Catherine

Dear Catherine,
Both of you are right. It depends on what your corporate policy will be and the size of the company. There are two types of cards available for businesses, corporate accounts and small-business credit cards. Here are the differences between the two.

Corporate credit card: A company can establish a corporate credit card account based on its own credit rating and issue cards to employees for business expenses. In many cases, the company pays for the charges on the corporate cards and the card issuer will go after only the company for payment.

However, a company can choose to make their employees jointly liable for the charges. In that scenario, the issuer of the corporate card will likely require each employee's Social Security number before it will give out a card.

The risk to the employee is twofold. An issuer can come after the employee for any late payments and can report any delinquency on the employee's personal credit report. Make sure your employees know which policy you adopt, so they know the risks before signing up for a corporate card.

Small-business credit cards: This is a related category of cards geared toward small-business owners who want to keep their business purchases separate from their personal ones. Many of these cards come with rewards programs that earn points at office supply stores and restaurants.

These cards can have authorized users added to them. The authorized user is not responsible for the debt on the card, but a late payment will be reported on their credit report. (Experian is the exception to this reporting, as it only reports positive payment history on authorized user accounts.)

The business owner is also at risk because these cards are backed by personal guarantees, meaning the owner is personally liable for the debt. To apply, the business owner must supply a Social Security number (often with a tax ID) instead of just a tax ID number as with a corporate credit card account. If the business owner falls behind on payments, the delinquent account likely will be reported to his or her personal credit report.

Another drawback of small-business cards is the lack of consumer protections. The Credit Card Accountability, Responsibility and Disclosure Act that capped or eliminated certain fees and banned egregious billing practices doesn't apply to small-business cards.

Choose carefully for your company if you want to minimize your employees' exposure to debt and credit risk.

Good luck!

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