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Can I Use My Personal Credit Card To Pay for Business Costs?

Business Credit Card, Build Credit Line

There are two types of credit cards: personal and business and the two cards work the same way with minor exceptions. Although it is legal and possible to use a personal credit card for your business costs, it has some implications. You can read about CoastTradelines here and discover why their tradeline is better than using a personal credit card for business.

Reasons To Use A Personal Credit Card For Business Costs

There are certain times when as an entrepreneur, you must use your personal credit card to pay for your business expenses. These reasons may include;

1. At the infancy of your business

When starting your entrepreneurial journey, getting financing is probably the most difficult thing you will face. Whether you are looking to start the next big startup or a simple online shop, getting the initial capital especially when no one is backing you can be tricky. Since your venture does not already have credit, this can be one scenario where using your personal credit is advisable.

2. Personal cards enjoy low charges

Another plus of using personal credit for your business expenses is the low rates that the cards incur. The Credit CARD act of 2009 restricts lenders from charging higher fees and rates on personal credit cards for any amount of credit being offered, unlike business credit cards. When your business is looking to acquire new equipment or essential service, getting a business loan would cost you exorbitant fees that you can avoid by using personal credit.

3. In case you run an LLC 

Most of the time when personal credit may be used to cover business costs is when the business in question is an LLC. Since the difference between person and business in a sole-proprietorship is quite slim, especially when you are the only employee making these purchases, this practice can be excused.

4. Personal credit cards enjoy more rewards 

When looking to offset your business expenses, going with your personal credit card can help you enjoy the benefits that come along with it. Personal credit cards provide you with better rewards such as cash backs, credit points, and flight miles, unlike what you get with a business credit card.

Reasons Not To Use A Personal Credit Card For Business Costs

While it is acceptable, making business payments with your personal credit card can lead to confusion and problems over time. Although these repercussions are not from the lenders or the merchants, they usually affect your personal life and business. These reasons include;

1. Weakens LLC protection

An LLC protects you from any lawsuits against your business. If you fail to pay your personal credit card while using it to finance your business, the LLC protection will not apply to you. This means that your personal assets may be vulnerable in case the bank comes knocking.

What is a derogatory mark? Negative things like missed payments, collections, repossession, and foreclosure are all examples of derogatory marks on your credit report. Your credit score has been damaged, which means you may not be eligible for new credit.

2. Complicates your bookkeeping

When your personal credit card finances your life and that of your business, it becomes a hassle separating the two. You will mainly experience this when filing your tax return to the IRS. In case you miss to include or include an entry twice, you could be liable to underreporting or overreporting your tax which can affect your business in the long run.

Reasons To Get A Business Credit Card For Business Costs

Although a personal credit card may appear convenient to use for your business costs, having a dedicated business credit card for this purpose is important. The following are some of the benefits that you get from having a business credit card.

1. Helps your business build credit

Using a dedicated business credit card is essential in ensuring your business builds credit that is independent of your personal credit. This is important in the long run when your business expands and looks for better financing from lenders. 

2. Easily track your employees’ expenses

A business credit card allows individual employees to have a unique credit card under the overall business credit card. This ensures that you get to find out how much each employee spends.

3. Your business can spend more

When making payments with your business credit card, as your business grows so does your credit which means that your purchasing decisions cannot be restricted by having insufficient credit. This means that your business can have more capital at its disposal for growth and improvements.

Unless you are looking for a complicated way of making your business payments, going with a business credit card is necessary for ensuring your business’ records are clear and your finances are well accounted for every time. 

More on this topic:

6 Top Costs Small Business Owners Face

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