Credit-Card Mania

Where to find the best rates, most perks, and lowest fees

As far as Joey Tomko is concerned, he's the king of credit-card freebies. Consider his treasures: a $1,800 sit-down lawnmower for his yard, two $800 go-carts, a $1,000 big-screen TV, and a $500, six-foot-high tropical fish tank for his office--all free. The source of his spoils? The Wells Fargo Platinum Business MasterCard, which he uses for his company's charge account. All told, the card has given Tomko $15,000 of such stuff as bonuses.

That's not all. Tomko, president of Government Sales Associates Inc., a $4.3 million, five-person computer hardware supplier in Sacramento, Calif., has also racked up 150,000 frequent-flier miles, which he used to send his office manager on vacation to Mexico, fly his father in for a visit from Florida, and make seven trips of his own. And the rewards keep coming, pumped up by cards Tomko gave his three sales execs for business entertainment. "I milk the card for all it's worth," he crows. Tomko, who pays off his $5,000-a-month average balance to avoid interest charges, says he may get another card, too.

Certainly, it's easy to abuse credit cards and run up debt your company can't afford. But used wisely, the cards can be a real benefit. They can help finance expansion, keep better track of spending, and, yes, let you accumulate more stuff.

The timing is pretty good, too. As small-biz card issuers clamor for your business, there are better perks, a greater array of choices, and more favorable terms than you could get on a personal card. Frederick (Md.)-based CardWeb.com Inc., an independent monitor of credit-card offerings, now counts about 100 issuers offering 300 different small-business credit cards--triple the number available just two years ago. Besides freebies such as unrestricted airline miles and points redeemable for DVD players and digital cameras, you can choose a card with no annual fee, free cards for employees, and single-digit interest rates, which were a rarity just four years ago. To help manage your expenses, some offer companywide online reports.

EXPLODING MARKET. Today, 48% of small-business owners use a small-business card--up from 29% two years ago. As of December, 2000, about 20 million small-business cards had been issued, says CardWeb.com--more than double the 9 million three years ago. Meanwhile, credit-card mail solicitations, both business and personal, are at an all-time high, and the deals keep improving. Over the summer, MasterCard International introduced its redeemable points program, which lets you accumulate points to spend at 21 million locations worldwide where MasterCard is accepted. Visa followed with a handful of new discounts for auto rentals and hotels. American Express Co., trying to appeal to entrepreneurs with a social conscience, launched the Community Business Card, which donates 1% of all credit-card receipts to finance tiny startups run by women and minority entrepreneurs.

Different features, of course, appeal to different entrepreneurs. If you're looking for a big credit line, MBNA's Platinum Plus for Business card offers the largest--as much as $250,000 without any annual fee and an unlimited number of free cards for your employees. Want low rates? Check out Capital One's Platinum Visa for Business. Depending on your credit rating, you could be among the lucky ones offered a 0% introductory interest rate for about six months, followed by a fixed rate of 9.9%. As for free airline miles, you could stuff an entire wallet with such cards, but only a handful of business issuers, such as Advanta's Bonus Miles Business MasterCard, let you redeem them with no restrictions.

Indeed, it pays to read the fine print. You might be attracted to the Midwest Express Gold Business MasterCard, for example, because of its generous airline rewards program--2,500 bonus miles when you first sign up and a free domestic round-trip after you've racked up 20,000 miles. But the card also carries a 16.9% variable interest rate and a $55 annual fee. American Pacific Bank Secured Standard Business Visa lets you get a credit line of up to $15,000--even if your credit history is shaky--but it also carries a hefty 17.4% fixed annual interest rate, and a $45 fee per card.

LAST RESORT LENDERS. Given how low rates are, perhaps the ultimate perk is the ability to write yourself a loan. With APRs as low as 9.9%, and teaser rates even lower than that, credit-card financing looks more attractive than ever. Last year, 50% of small businesses used business or personal credit cards as a financing tool, vs. 24% in 1996, says a survey by Arthur Andersen LLP. "This form of unsecured credit has been a real shot in the arm for small businesses," says David Robertson, president of The Nilson Report, an industry trade newsletter.

Some savvy entrepreneurs have landed the most attractive deals by rate-surfing--choosing a card with a low introductory rate and, before it expires, transferring the balance to another card with a low introductory rate, and so on. Five years ago, Tom and Marilyn Rodammer, co-founders of The Listening Room, a $1.5 million retailer of home entertainment systems in Saginaw, Mich., needed $120,000 to renovate their showroom. The seven-person company couldn't get a bank loan, so the Rodammers decided to rate-surf. Over five years, the couple ran through 20 different credit cards, including two business cards. They found the technique so successful, they wound up borrowing another $120,000 to do even more renovations, at an average interest rate of about 10%. It is not, however, a technique for the less-than-meticulous manager. "It was difficult, tedious, and time-consuming," says Tom Rodammer. "I would spend three or four hours a couple times a week monitoring all the charges."

But the strategy worked. The business got what it needed for expansion, and the company tripled its revenues as a result of the renovation. The Rodammers finally paid off all their card debt in June after obtaining a commercial mortgage and a line of credit from Cleveland-based National City Bank.

Still, it's easy to get overextended, as John Glistos learned. Ten years ago, when he started his interactive kiosk manufacturing company, Scottsdale (Ariz.)-based FirstWave Inc., Glistos figured his $250,000 in savings would be enough both to fund the company and pay personal expenses. It wasn't. After two local banks turned him down for a loan, he started rate-surfing among more than a dozen cards, and from 1992 to 1994, Glistos piled on $57,000 in debt. "There were points at which I couldn't make sufficient payments, and I would get harassing calls from creditors in the middle of the night," Glistos recalls. "It got pretty ugly." He carried the debt for six years, finally paying off the last of it early this year. His 13-employee company has continued to grow and now has revenues of $1 million.

While Glistos pulled himself out of the hole, banks write off about 7% of business credit-card debt as uncollectible, according to CardWeb.com. But that doesn't mean they don't try: In fact, virtually all small-biz card issuers demand that you personally guarantee payment and pledge your own assets, and sometimes they ask officers and partners to co-sign, too.

Nevertheless, a bad credit record won't faze some issuers. In May, Wells Fargo & Co. launched its pioneering Business Secured MasterCard, with credit lines up to $100,000 for new small companies or those with impaired histories. Although the fee and interest rate on the card are competitive, entrepreneurs are required to secure the credit line fully with an equivalent amount of cash in a bank account. Why should you bother? Unlike most other business credit cards, which are tied to your personal credit history, this one allows entrepreneurs to build up a credit history in the company's name. At the same time, they can take advantage of MasterCard's discount offers and rewards programs.

Assuming you don't spend yourself into bankruptcy, the credit cards also offer a way to track companywide expenses more efficiently, offering periodic reports that break down spending by category. "In the last one or two years, our customers have become very interested in credit-card products that will help them manage their business," says Michael Carbone, director of small-business card products at J.P. Morgan Chase & Co. Many issuers now offer online reporting, where you can view your charges at a password-protected Web site, or through an e-mail update service. Some let you download spending reports into your accounting software, and Fleet's Smart Visa will send e-mail alerts when an employee exceeds his or her credit limit.

HOW TO CHOOSE. To find the best card for your business, consider your priorities (table). If you intend to pay off your balance each month, then you can focus more on the goodies and less on interest rates. If it's the convenience of electronic payment you're looking for, then double-check to ensure that vendors you use accept that card. And to use the card as an effective expense management and organizational tool, check that the issuer has the ability to offer frequent reporting, online access, and the option to download reports into your money management software.

Rewards programs vary, also. "Don't be too dazzled by the frequent-flier points," says The Nilson Report's Robertson. If the only travel you're doing is to your local office supply store, you're better off looking for cards that offer discounts on your purchases. All MasterCard small-business cards, for example, give users a 20%-to-36% discount on office supplies at penny-wise.com. Check if the issuer loads on more fees if your staff grows, and whether cards issued to your employees can be assigned individual credit limits. One other caveat: Perks are tax-free if you use them for your business. They might be taxable if put to personal use, but so far, the IRS hasn't decided to enforce the idea.

To be sure, the rewards programs may become less generous when most entrepreneurs have settled on a business card they like. Maybe card issuers will tire of hawking lawn mowers, free flights, and fish tanks, and Tomko, the king of credit card freebies, will have to turn in his crown. Until then, enjoy the royal treatment.

By Naween A. Mangi

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