Card offers target small businesses

BY JIM HOPKINS

Small-business owners face an onslaught of choices as companies blitz them with new credit card offers.

American Express just launched a cash-back card aimed at small companies. This month, Visa is rolling out a card targeting small firms with big appetites -- those spending $25,000 or more a year. Discover entered the market for the first time over the summer.

Business owners should move cautiously, however, just as they would when shopping for a personal credit card. Rock-bottom interest rates can jump after the introductory period ends. They often soar, too, if owners make a late payment. Cash-back rewards may sound like great money savers, but not if you carry a balance subject to high interest.

Marketers smell opportunity in the 90% or more of small-business spending not on credit cards -- up to $4.8 trillion a year, says Visa.

The surging interest in small firms comes as the corporate market is pinched. Growth in the number of big employers -- those with 500 or more workers -- has been flat since the end of the 2001 recession. In the same period, the number of small employers grew 4%, to 5.9 million.

When it comes to credit cards, here's what small-business owners should consider:

• Rates. Owners may not care about interest rates on their personal credit cards if they pay off balances monthly. But in their businesses, they're more likely to carry big balances if spending surges when revenue falters. That makes lower rates much more valuable.

• Rebates. Cash-back awards for buying office supplies or booking airplane tickets are just as popular among business card issuers as they are with consumer offers. But read the fine print. Some cards offer 5% back on office supplies, 2% on gas and 1% on all other purchases. Those savings can be wiped away, however, if the cardholder carries a balance at much higher rates.

• Foreign exchange fees. These fees, often 3% of a purchase amount, apply to purchases from overseas suppliers, a type of spending more common among business owners than consumers. Some credit card issuers omit the fee, however. "For someone ordering large items from foreign countries, that would be something to watch out for," says Joe Ridout, spokesman for Consumer Action, an advocacy group in San Francisco.

• Universal default. Some card issuers will immediately raise interest rates to as much as 30% when customers make late payments to other creditors, such as on a car loan. Business customers are not automatically granted an exception.

• Customer service. Discover, the new entrant in the small-business market, is promoting better customer service to grab new business. It aims to resolve customer problems on the first call. If not, the problem will be assigned to one employee, and the customer will deal only with that employee until the problem is solved.

"We have someone internally who owns your problem," says Sastry Rachakonda, director of Discover Business Card.