RELATED TOOLS RELATED ITEMS Chart: Low-Rate Credit Cards Cheap Plastic: Cards for Small Companies Finance Archive

Entrepreneurs are accustomed to thinking of credit cards as last-resort financing for their businesses. But with Fed Chairman Alan Greenspan pumping up interest rates on conventional loans, plastic money is seeming downright cheap.

Just look at the monthly survey from the National Federation of Independent Business, based in Washington, D.C. It says rates for short-term small-business loans rose to 9.7% in February, from 8.9% last April. That's the average -- plenty of small businesses pay double-digit rates. By comparison, credit cards can be had for 9.9%, and some have introductory teasers as low as 2.9%.

Does this mean you should bypass your banker? Credit-card financing is potentially risky and can wind up costing you more if you're not careful. But if you are vigilant about reading fine print and diligent about making payments, business credit cards are a potential source of cheap capital right now.

COMPETITION FOR AMEX. Why are your banker's interest rates almost the same as credit-card rates? Partly because the Federal Reserve Board has raised interest rates four times in less than a year to try to cool down the economy. (Best guesses are that the Fed will raise rates again later this month and several more times during 2000.) At the same time, an increasing number of credit-card companies are desperate to attract small-business dollars amid superheated competition. It's a far cry from when American Express was just about the only card company making a serious effort to serve this market.

"Visa and MasterCard are hurrying to take away as much business from American Express as possible, particularly for small-business cards," says Robert McKinley, chief executive of Cardweb.com Inc., a Frederick (Md.) firm that tracks the card industry. CardWeb says businesses can now choose from nearly 100 cards. Credit lines run as high as $100,000, though limits more typically are for less than half that amount. McKinley says entrepreneurs can expect rates between 13% and 14% on the cards, though you can find deals with APRs as low as 9.9%.

Advanta Corp.'s no-fee Mastercard Executive Business card has a 9.9% variable rate tied to the LIBOR index, a widely used benchmark for business loans. American Express' Platinum card for small business has a six-month introductory rate of 2.9%. The no-annual-fee card then jumps to an 11.99% fixed rate. FirstUSA's Platinum Visa Business Card, another no-fee card, also comes with an introductory rate of 2.9%, but for seven months. It then jumps to a variable 4.9% above prime, currently 13.65%.

Can these cards really replace a conventional loan? Possibly. If you're good at shuffling paper, you can always go "rate-surfing." The trick is to keep switching from one low-rate offer to another just before the introductory offer expires -- usually after six or seven months. That means you have to aggressively monitor your accounts so you know when it's time to switch. Make sure that the account is actually listed as closed on your credit report. "If they are not properly closed, it can artificially inflate the amount of available credit" on your credit file, McKinley says. That could negatively affect your credit rating and lead to higher interest rates on all your cards in the long run -- or outright denial.

STIFF LATE FEES. Watch out for other complications. Obtaining a business credit card means most issuers will run credit checks on both you and your company. Frequently, they won't give you a card if you've been in business less than two years, though there are exceptions (such as Advanta). Most cards require a personal guarantee, which means if your business fails and can't meet its financial obligations, you'll be on the hook for unpaid balances. And if you're late paying your bill, issuers can jack up your interest rates, sometimes as high as 30%, says McKinley.

If you happen to get a fixed-rate card, it doesn't mean your rate is locked in forever. "It's a little misleading to think of fixed-rate cards as etched in stone. The issuer has permission to change rates at any time," says David Robertson, president of Nilson Report, a trade publication for the credit-card industry based in Oxnard, Calif. That's especially important with variable-rate cards tied to the prime rate.

However, it doesn't mean the Fed's recent hikes will immediately show up in your next statement. McKinley says about 60% of issuers change their rates monthly, such as Capital One. An additional 30% adjust them quarterly, including First USA. If you crave stability, go for the 10% of issuers that change their rates twice a year, such as USAA Federal Savings Bank.

Nor do the Fed's actions guarantee rates will rise point-for-point -- or at all. "Modest rises in the interest-rate environment as we have experienced would not preclude us from being able to offer" the 9.9% rate on their card, says Jeffrey Oberstein, senior vice-president for Advanta Corp. "But there is no ironclad guarantee."

CONSUMER TRICKS. If your rate does go up, you can call the issuer and threaten to cancel the card if the rate isn't lowered. Robertson say consumers are often successful with this tactic, and there's no reason why businesses can't do the same thing.

This isn't a strategy for everyone. It's time-consuming, and a surfing miscue can wind up costing you far more money than you'll save in interest expense. If you're not the meticulous type, better take a pass.

What's more, rate-surfing can hurt you when you try to return to conventional financing. That's because the numerical credit-scoring system used to grade commercial borrowers deducts points when it detects a series of recent applications. So beware: While those credit-card rates look cheap now, they could end up being mighty expensive in the long run.