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For years, many small-business owners have used personal credit cards for company expenses, but the simple separation of personal and business costs is increasingly attractive.

Charge it. Those two words are heard much more often from small businesses these days as they increasingly turn to using charge cards targeted at companies of their size.

The number of such small-business cards in the U.S. jumped to 10.2 million last year from four million in 2000, and is expected to reach about 12.1 million at the end of this year, according to the Nilson Report, a credit-card industry publication, based in Oxnard, Calif.

Spending on general purpose small-business accounts--such as Visa, MasterCard, and American Express rather than single-store charge cards--is projected to be about $111.39 billion this year, compared with $94.8 billion last year and $35.44 billion in 2000.

Of the small-business cards outstanding in 2003, 75% were credit rather than debit accounts, according to the Nilson report. But debit accounts have been growing as well, with MasterCard International Inc. reporting an increase of 65% in its debit-card portfolio last year.

Convenient Accounting

Small firms like Careers on the Move, a New York-based executive-recruiting firm, say that the convenience of charging nearly all their business expenses, from phone bills to office supplies, saves time and money. Careers' co-founder Kathy Sheehan says the firm gets double miles in an airline's rewards program, and at the end of the year American Express Co. sends a statement on her small-business charge account breaking down expenses into various categories, which Ms. Sheehan turns over to her accountant.

For years, many small-business owners have used personal credit cards for company expenses, but the simple separation of personal and business costs is increasingly attractive. Some 42% of small-business owners use cards issued to the business and not personally to the owner, according to a 2001 survey conducted by the National Federation of Independent Business's research foundation. Some 20% used personal cards only, with 19% using both, the survey said.

According to a 2004 survey conducted for American Express by International Communications Research, the most common purchase using business credit or charge cards is travel, 63%; followed by office supplies, 53%; entertainment, 51%; computer equipment, 44%; wholesale purchases, including manufacturing supplies, food products, inventory, equipment and goods for re-sale 43%; and business or professional services, 26%.

Card companies have added other features for small business as well, such as cash rebates on purchases, increased credit lines and automated monitoring of employee use.

Card Caveats

As useful as small companies find the cards, experts also warn of potential pitfalls. "There is a price to pay for that convenience," says Ray Barnes, executive vice president at BB&T Corp. a Winston-Salem, N.C., banking company that offers both conventional loans and credit cards to small businesses. Interest rates for the cards are usually higher than those for conventional loans, he says.

"As something to carry huge balances on, my tendency is to say no," says Bruce Phillips, senior fellow in regulatory studies for the NFIB's research foundation. "I'm worried about the rates."

Aggressive Marketing

Cards designed for small business have been around since the mid-1980s, but their promotion by issuers has accelerated in the past few years.

Financial firms are aggressively marketing the cards, filling up mailboxes and blanketing television and the Internet with advertisements for business-only cards. One catalyst has been the availability of better technology and methods to screen prospective customers, says Steve Abrams, senior vice president at MasterCard International, in Purchase, N.Y.

After experiencing high customer delinquency rates, Advanta Corp., a large business-card provider in Spring House, Pa., tightened its credit-card underwriting standards in 2000, says David Weinstock, chief accounting officer. It has paid off: The company's card receivables balance increased about 15% during 2003, according to its annual report. At the same time, the amount of receivables delinquent for 30 days or more fell to 4.9% of owned receivables from 5.3%. Advanta's business-card customers put $7.04 billion in purchases on their cards last year, up 29% from 2002. Its customer base rose 13% to 586,342 active accounts.

Personal Liability

But business cards don't always protect a company owner's personal finances. In many cases, the owner must personally co-sign when applying for a business-card account, which means the owner can be held personally liable for the loan, says Charles Ou, economist with the Office of Advocacy of the Small Business Administration.

"Even with a business card, they're still exposed," Dr. Ou says.

As financial-services firms have improved their risk-management skills, they've also gotten bolder about marketing to small businesses. Advanta's marketing expenses jumped 42% in 2003 to $15.7 million. Most card providers use direct mail, offering zero percent financing for balance transfers for six months, among other features. Many large financial institutions offer both debit and charge cards to small businesses, and American Express has charge accounts, with balances to be paid off monthly, and revolving charge accounts with charges paid off over time.

The market potential is big, says Mr. Abrams of MasterCard. He estimates that the card industry could ultimately capture about 20% of total small-business spending in North America, up from about 6% of small-business spending now.

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