Would You Start a Business to Get a Terrific Credit Card?

How would you like a credit card with these features?

• 0% APR for 15 Months on Balance Transfers, 7.99% Fixed APR Thereafter
• 7.99% Variable APR on Purchases
• Choice of Up to 5% Cash Back or Travel Rewards
• No Annual Fee and No Limit on Earnings
• 0% Fraud Liability

If you play this card right, it could be a huge help in getting out of debt, with that 0% APR for 15 months. Or, if you're already out of debt, you could use it to rake in 5% cash back on certain purchases — gasoline and diesel fuel, computers, computer supplies, electronics, office supplies, online advertising, utilities, and telecommunications. While I hope you won't run up a balance, your purchase APR of 7.99% would be one of the lowest around.

This sounds great, doesn't it? Surprise, surprise; there are a few hitches — unless you've already been thinking about starting a business. Apart from going after this business credit card and its enticing perks, it's very smart to set up a shop of your own for extra income and tax breaks. Your business might even grow into something you can depend on should times get tough(er). Click here for our ideas on how to start a business of your own.

But whether you're starting a business or not, if you have very good to excellent credit, you should have no problem qualifying for this business credit card – if you don't mind fibbing a little bit. It's the Advanta Platinum with Rewards Business Card, which, like every other business card, considers both your personal credit situation as well as your business' when considering your application.

Assuming an individual has a solid credit history, all that may be required to qualify for this card is a business name and phone number -- and even this may not be necessary. Oftentimes, when people are just starting a business, they haven't yet filed any paperwork for a business name or obtained a business phone. Wondering if folks in this situation could still get the card, I called Advanta's toll-free number. I said that I was thinking about applying for the card, but I was just starting out in business: "I know what name I want to use, but I haven't registered it any place, and I don't have a business phone number yet. Can I still get the card?"

The customer rep told me, "That's fine. You're planning to start a business."

Not convinced, I wrote to David M. Goodman, Vice President of Communications at Advanta. "It is possible for an individual that meets our criteria for a credit card to be approved for a card even though there is no available information on the individual's business," he responded. "The individual still must agree to our terms and conditions, of course."

The particular terms and conditions of which Goodman was speaking are:

1. The applicant has to be "either a proprietor or an authorized representative, partner, officer, employee or agent of the business identified in the Application (the Business')."
2. "The Cards and the account will be used solely for business purposes (including commercial, industrial and professional purposes) and not for personal, family, or household purposes."
3. "The Signing Individual and the Business are jointly and severally liable for all transactions on the account (which means that the Signing Individual is personally liable for all amounts on the account that are due to Advanta Bank Corp ABC).

Solely for Business Purposes . . . hmmmmmm . . .
How would a lender know if a purchase at Staples or an airline's website was for business or personal reasons? Assuming a cardholder's credit picture doesn't change and all bills are promptly paid, I wondered how much risk a person would be taking if a business card was used for personal purposes, and what the likely consequences would be if personal use was discovered.

"This is not something we police or monitor, as the cardholder has agreed to abide by the terms and conditions, which are clear," explained Advanta's Goodman. "In addition, it would be a very tough issue to police. For example, a small business person is very likely to purchase food at a grocery store for a company lunch, or to buy a train ticket to attend a meeting, etc."

It's on the Honor System. How Refreshing!
Delving further into the fine print, I came across this important detail about balance transfers made to Advanta Bank Corp: "ABC will transfer full or partial balances from other business accounts, in amounts up to $250 less than the amount of your total available ABC credit line, to your account, after it is approved, by processing your requests, in full or in part, in the order indicated."

But what if you don't have any other business accounts, and the funds you want to transfer to take advantage of that 0% for 15 months come from other accounts in your name. Would they be accepted?

"Since Advanta only issues business purpose credit cards," David M. Goodman answered, "balance transfers should be for other business purpose accounts."

I pursued the subject a bit more, explaining that my focus is on someone just starting out who, as is typical, accumulates quite a bit of debt on personal cards, even though it may be intermingled with some personal expenses. Could that debt be transferred? Otherwise, the card would not be as attractive or useful.

"When an applicant or customer requests that a balance be transferred to his/her Advanta Business Card account, we rely on the assertion that the balance is related to business purposes," Goodman responded. "However, if we have reason to believe that some or all of the transferred balance is for personal or household purposes, we are likely to deny some or all of the requested transfer."

While all the balances you want to transfer may not be approved, there certainly seems to be a large gray area, where certain expenses could be perceived as business bills, whether that's the case or not.

The Downsides
While having part of a balance transfer request denied may not seem like too serious a risk to you, I have enough trouble sleeping at night, and would not apply for a business credit card unless I actually had a business or was starting one.

Leaving aside concerns about ethics and karma, it sure seems to me that it wouldn't be hard to get a business card, assuming you have the requisite personal credit history. Credit expert, attorney, and author John Ventura agrees that it's "easy for an individual to get a business card" and take advantage of the perks and interest rate." But there are some negative aspects of business credit cards that you ought to consider:

• Universal Default While issuers seem to be giving up this practice of raising the interest rate on personal cards if you're late on a payment on any credit card or other bill, that's not the case for business credit cards. If your credit picture changes, your interest rate can go sky-high. Advanta says, "We may change all of your account terms, including rates and fees, at any time for any reason."

The reason lenders have stopped using universal default "is because consumer advocates have brought it to the public's attention," as John explains. "There is no small business lobby raising the same issue for business credit cards, and as long as no one is raising hell about it, companies who offer business credit cards will have it in their contracts."

• Fairness If you do get hit with a default rate on a business card, not only would the rate go way up on charges that you make from this point forward, but the new rate would also apply to your current balance, even though those charges had been approved at a lower interest rate. If legislation pending in Congress is successful, individual cardholders will be protected from this reality. Also, one would hope that lenders would no longer be allowed to credit payments against the balance with the lowest interest rate on personal cards.

Unfortunately, it's not expected that business credit cards will be treated the same way. So assume that consumer-unfriendly policies will remain on them. At least Advanta's terms and conditions make it crystal-clear: "We allocate your payments and credits to pay account balances bearing lower interest rates, such as introductory and promotional rate balances, before balances bearing higher interest rates."

• Bill Collectors "If you have a regular credit card and later cannot pay and the collector gets aggressive, you have the Fair Debt Collections Practice Act (FDCPA) to protect you," reports John Ventura, whose new book, Stop Debt Collectors will soon be published by Credit.com. Collectors can get more aggressive, "because business debt is not protected under this law."
• Bankruptcy John also points out that if you fib' about the use of a business card, it "could come back to haunt you if you file for bankruptcy and try to get the debt discharged. In bankruptcy, if you get credit under false pretenses, the bankruptcy code says a creditor can file an objection to have that debt not discharged in the bankruptcy, so it would survive and they could still try to collect."
• Negative Business Credit Just as there are bureaus that record our personal credit histories, there are agencies that collect information to build business credit profiles for example, Dun & Bradstreet, InfoUSA, and Experian. Using a business credit card wisely helps build a positive business credit picture. If you become over-extended while you're using a business card for personal expenses, you might be creating a problem for yourself down the road, when you do want legitimate business credit. For our detailed look at building business credit and choosing business cards, see "Credit Cards and Your Small Business."

Important: Whatever you do, don't charge more than you can afford. The last thing you want is for your house of cards to come tumbling down, whether it includes personal cards, business cards, or both.

Nancy Castleman - Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press, Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all of these subjects for CreditBloggers.com and Credit.com.