Credit cards can be a valuable SOHO tool
Issuers increasingly aggressive in their small business card offerings

The link between small business and credit cards is the stuff of legend. Upstart entrepreneurs have always taken advantage of just about any opportunity to make their financial lives easier. It's not hard to find small business owners who talk fondly about how they financed some, or all, of their initial growth using credit cards.

And while few experts counsel such a strategy, the fact remains, business credit cards can be an invaluable tool for SOHO entrepreneurs.

"Credit cards can help business owners in several key financial management areas," said Laurence Nolevaux, senior product manager, at the VISA Canada Association. "These include traditional access to short-term working capital and the generation of reporting information. In recent years many of the cards also have increasing reward incentives attached to them."

Canadians are huge credit card lovers. According to Canadian Bankers Association statistics there were 44.1 million VISAs and MasterCards in circulation at the end of 2001. During that year, more than 1.2 billion transactions were recorded worth approximately $121.82 billion.

None of the major issuers would divulge the number of small business customers they have, but all of them claim a significant increase. For example American Express, has doubled the number of cards issued in the category during the last four years.

Business credit cards provide SOHO entrepreneurs a host of advantages that individual consumers have long been accustomed to. These include the convenience of being able to buy goods and services just about anywhere, the freedom from carrying large amounts of cash, minimization of billing, check writing and paperwork, and what amounts to an interest free loan between purchases, and the payment due date.

Credit cards perform many of the same functions as a line of credit, and in recent years many of the issuing companies have made it possible to write checks on their accounts, which has gone a long way to increase their attractiveness for small businesses. However they are much easier to apply for than credit lines or other bank loans.

Traditionally, SOHO entrepreneurs faced many of the same challenges obtaining corporate credit card access as with bank credit.

By definition, SOHO businesses are smaller and newer than most businesses. Without track records, banks have traditionally been reluctant to issue corporate cards except on a fully secured basis, often with personal guarantees attached. Entrepreneurs responded by charging business expenses on their personal credit cards, and then periodically reimbursing themselves with company funds.

But in recent years the banks have become increasingly aggressive and flexible in their marketing approaches.

"The small business credit card market has become increasingly competitive," said Tom Allder, senior marketing manager, small business services at American Express. "As a result, issuers have been incorporating new features into their product offerings such as reward programs, co-brands, and customers have been the big winners. Credit approval procedures are also constantly being revised."

Credit cards can be broadly classified into two groups. The first comprises traditional credit cards, which can be used in a range of establishments. The second group consists of proprietary cards, which are designed to make it easier to do business with one particular supplier.

Traditional credit cards:

The traditional credit cards; VISA, MasterCard and American Express deal with small businesses much the way they do individual consumers. But their product offerings are more targeted. In fact there are literally dozens of packages out there, that meet the specific needs niche users such as business travelers, volume buyers, and those who want to defer payment and are thus primarily concerned with low interest rates.

For example the VISA Aerogold for Business offers a credit limit of up to $50,000, interest rates as low as 10.9%, and automatic enrollment in Air Canada's Aeroplan, which offers Aeroplan miles based on gross spending.

Co-branded products are also gaining in popularity. For example American Express Costco Corporate Card offers dual membership. The card also provides access to a small business savings program that provides discounts at vendors such as Federal Express, Hertz, and AT & T Canada.

Issuers are also taking steps to allay management concerns that small business employees might use their credit cards to buy things they are not supposed to. For example MasterCard's MasterAssist program offers liability protection in cases of unauthorized use, of up to $5,000 per card for businesses with two to four cards.

Proprietary cards:

Proprietary credit cards such as those issued by gas station and retail operators, make it easier for companies to do business with one particular supplier.

"Proprietary business cards have seen enormous growth in recent years," said Steve Irwin, direct marketing manager at Staples. "Vendors and retailers are using these cards to combine credit services with value added loyalty features such as discounts, points, and incentives, so that customers keep coming back."

These cards are particularly popular with companies who want to give employees authority to spend money on the company's behalf, but want to limit that authority. One common example is for companies to issue gas station credit cards to employees such as truck drivers and salesmen who use motor vehicles for work. Combining purchases with one vendor may make the company eligible for volume rebates or discounts.

However although these businesses may want employees to be able to fill up and repair their vehicles, they also might want to restrict them from making other purchases.

Like many proprietary issuers, Staples offers a variety of credit card options to meet just about any taste. The company markets the Enterprise credit card, which can be used by small business owners who simply want to make purchases on their personal accounts, or for SOHO operators who want to deal under their business name.

Among the options available are a deferred payment plan, which enables businesses to defer purchases of more than $400 for up to 90 days. Interest fees are waived if the amount is paid in full by the due date. If it is a furniture purchase, payment can be deferred for up to 12 months.

Staples credit card clients are also eligible for the equal payment plan for purchases exceeding $1,000. These can be paid off in equal installments over 18, 24 or 36 months.

The bottom line is that choosing which credit card (or cards) is right for which business depends a lot on each company's circumstances.

"As business grow and evolved their needs change," said a MasterCard spokesperson. "Right now there are credit card options structured to business of all shapes and sizes."

And with the increasing recognition of the role played by both the small business and SOHO sectors in today's economy, and the increasing competition by card issuers to access those markets, new offerings are inevitable. So choosing the best credit card strategy is not going to get easier any time soon.

Most credit card issuers market a variety of options. For more specific information you can visit individual Web-sites.

American Express:



VISA* AMEX* MasterCard* Staples*

Annual fees: $0 to $180 0 to $99.00 None

Credit Limit: Up to $50,000 $1,000 to Variable
unsecured No-Preset limit

Categorized statements: Some Some Some Yes

Incentives: Yes Yes Yes Yes

Payment options: Varies Varies Multiple Multiple
(Min. $10 per
month, or 3% of

Equal payment plan No No No Yes

Years in business Depends on Not Depends on Based on credit
before eligibility: issuing bank disclosed issuing bank check

*All of the companies issue a variety of cards, for more information about specific options please visit company Web-sites.




Diekmeyer can be reached at


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