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Should You Use a Personal Credit Card for Business Expenses?

If you’re a sole proprietor or a small business owner, you probably have to buy things for your business from time to time.

Whether you’re buying a laptop for your freelance writing gig or buying tools for your handyman service, it’s easy to use a credit card to make your purchases.

If you already have a personal credit card, you might wonder:

Should you use a personal credit card to pay for business expenses?

While you can do this, it’s usually a bad idea -- for several reasons.

Ideally:

You get a business credit card to pay for those business expenses.

Why You Might Use a Personal Credit Card for the Business

If you already have a personal credit card, there are a few reasons you might want to use it when you’re making a business purchase.

Convenience

The most obvious reason is that it’s easy to use a personal credit card.

You already use your personal card for other purchases, so why not use it to buy things for your business.

Just take it out of your wallet and swipe when you need to buy something.

Using a personal card also means that you won’t have to go through the process of applying for a business credit card and waiting for it to arrive.

If you’re trying to scale your business quickly or have an urgent purchase to make, waiting a week or two to get a business card can be painful.

Rewards

If you have a personal credit card, you probably already earn rewards with that card.

Using your credit card for business purchases can supercharge your rewards earnings by increasing the amount that you spend.

Getting rewarded for your spending is appealing, so it can be tempting to spend as much as you can on your personal card.

Why It's a Bad Idea

Though it’s tempting to use your personal credit card for business expenses, you should avoid doing so whenever possible.

There are multiple things that make using your personal credit card for business expenses a bad idea.

Liability protections

One of the benefits of forming a business or a limited liability company (LLC) is that you receive personal liability protection.

If you have an LLC and someone sues your business, you’re typically protected.

If you lose the lawsuit, the person suing you can take your business’ money, but can’t take your personal funds or assets.

That said:

These liability protections require that you keep your personal finances and business finances separate.

You need to maintain separate bank accounts and records for yourself and your business.

If you break this separation, for example by using a personal card for a business purchase, then you can lose this liability protection, exposing your personal assets.

Bookkeeping

Every business needs some kind of bookkeeping system.

Whether you’re using professional bookkeeping software or a paper ledger, bookkeeping lets you see how much money you’re making and how much you’re spending on your business.

Without good bookkeeping, you’ll have no idea whether you’re making a profit or losing money on your business.

Moreover:

Good bookkeeping is also important if you want to expand your business by getting a loan or need help paying your business taxes.

Any lender or accountant will want to look at your business’ books to make sure that everything makes sense and that you can track your revenue and expenses.

Using a personal credit card makes bookkeeping much harder.

  1. You need to comb through every purchase on every statement to separate your personal expenses from your business expenses.
  2. You need to do the math to figure out your total business expenses. This gets even more complicated if you carry a balance and wind up paying interest.

Using a business credit card makes it easy to track your business spending: it’s all in one place.

Many business cards come with features that make it easy to integrate with popular bookkeeping software to make the process as easy as possible.

Business credit

Just like people, businesses have credit scores.

Lenders use business credit scores when deciding whether to offer loans and what interest rates to charge when businesses apply for loans.

When you apply for a business credit card, lenders often take your personal credit into account, but getting a business credit card will help you start building the credit profile for your business.

Building good credit card usually takes time.

The most important factor in your credit score is your history of on-time payments.

If you want to grow your business, there’s a good chance that you’ll apply for loans at some point in the future.

The sooner that you can get a business credit card and start building your business’ credit, the better your business’ credit score will be when the time to apply for a loan comes.

Credit limits

If you’re mixing your personal and business spending on one credit card, you could run into a situation where you have trouble using the card because a low credit limit.

Your personal card isn’t designed for business use, so if you’re using it for business spending, it’s easy to spend more than the card issuer expects.

This is especially true for small businesses.

Business credit cards are designed for business owners, so card issuers are more understanding about business spending habits and often offer higher credit limits.

It also lets you keep your personal and business spending separate so that they don’t affect your ability to spend on the other. The last thing that you want is to find that you don’t have enough credit to buy dinner because your business needed to place a large order the day before.

Keeping your personal and business spending separate means you’ll have more control over your personal and business spending limits.

Spending power

Relatedly, having a business credit card gives your business more ability to spend.

Business cards often have higher limits than personal cards and your ability to use your limit won’t be affected by your need to make personal purchases. 

Using your business credit card will also help you build business credit, making it easier for you to get a loan in the future, further boosting your spending power.

How to Apply for a Business Credit Card

Applying for a business credit card is very similar to applying for a personal credit card.

Most card issuers offer the option to apply online by filling out an application form.

The form will look much like the application for a personal credit card.

The biggest difference:

You’ll have to provide information about your business.

Most applications also ask for your personal income information, but business card applications usually ask about the type of business, its annual income, and annual spending.

Even if you don’t have any business revenue yet, you can apply for a business credit card.

Card issuers know that new businesses need access to credit and are prepared to lend to businesses that are in the startup process.

Once you’ve provided the information, most card issuers check your business credit and your personal credit before making a lending decision.

If you’re approved, you’ll get the card in the mail in a week or two.

Business Credit Card Rewards

Just like personal credit cards, business credit card offers rewards.

Understandably, most business credit cards offer rewards focused on the types of purchases that businesses make.

Where consumer credit cards offer a lot of bonuses on things like online shopping or groceries, business credit cards are more likely to reward office supply purchases.

When choosing a business credit card, think about the type of things that your business spends money on.

If you buy lots of office supplies, get a card that offers more rewards on purchases at office supply stores.

If you travel a lot for your business, you can get an airline rewards business credit card and take advantage of premium travel perks. There are also some cards that offer more flexible rewards.

A neat benefit:

Some rewards programs, including American Express Membership Rewards and Chase Ultimate Rewards, lets you combine your points from personal and business credit cards for larger redemptions. If you’re already loyal to one program with your personal credit cards, that can affect your choice of business credit card.

Don’t forget about sign-up bonuses.

Many business cards offer huge signup bonuses, even higher than the bonuses on personal credit cards.

If you have a big purchase coming up, a business card can help you earn huge rewards, cutting the effective cost of your purchase.

Conclusion

While it’s easy to use your personal credit card for business expenses, it’s usually a bad idea.

You’ll be exposing your personal assets to business liability and reducing your business’ ability to borrow money in the future.

Applying for a business credit card isn’t much harder than applying for a personal card and it will get you on the path toward building good business credit.