Spend management

Can I use a personal credit card for business?

Dec 05, 2024

At the start, your personal credit card was a lifeline. Now, purchases have increased, and cost management is complex. Should you switch to a business credit card?

It’s perfectly legal to use your personal card for business costs. For start-ups and small enterprises in particular, this offers a convenient option.

With only a small team of employees, it’s easier to manage expenses and monitor where the budget is allocated. You’re making a handful of low, regular payments and some one-off bigger payments – all visible in your accounts.

However, that system doesn’t scale up well. Now, you may find yourself asking some of the following questions when looking at your finances:

  • Is this a business purchase or a personal transaction?
  • Will that be tax deductible?
  • Why has this been expensed as a business cost?
  • Will this large payment affect my credit rating?

If you’re starting to weigh up the pros and cons of personal or business credit cards, you’re not alone. Let’s explore why this is so widely debated in business. 

Personal vs business credit card: why the debate?

There are plenty of similarities between personal and business credit cards. Both allow you to borrow money, pay your balance off (in part or in full), spread the costs of items, and earn rewards for your spending. 

Personal cards benefit from Section 75 protection when there are issues with goods or services. They are immediately accessible to the business owner who needs a smooth transaction in the middle of their busy day. 

You may also find the thought of applying for a business card and waiting for weeks to receive access offputting. 

Business credit cards, on the other hand, are better designed for the larger investments that scaling companies need to make. They offer higher limits and tailor their rewards for business spending, for example, cashback on fuel and air miles. They also give you the option to assign employee cards, making purchases more of a team effort. 

Whilst it’s true that they often come with higher interest rates and higher payment thresholds, it may be that your company is ready to meet these high demands. 

Personal credit card vs business credit card for business expenses
Personal credit card Business credit card
✅ Personal rewards e.g. shopping points 

 

✅ Higher borrowing limits
✅ Consumer law protection ✅ Can assign employee cards for the allocated budget
✅ Convenient and quickly accessible  ✅ Business-oriented rewards, e.g. air miles
❌ Late payments could affect personal credit rating ✅ Centralises expenses
❌ Can lead to scattered spending ❌ In some cases, less consumer protection

If you’re worried that the potential for a larger scale could mean larger risk, consider how inefficiencies most often occur through small, repeated mistakes or oversight. Personal cards are often full of missed cost optimization opportunities. 

The disadvantages of using a personal credit card for business payments 

A personal credit card may be more convenient but could lead to complacency. Here are some risks associated with using a personal card for business spend. 

Accounting errors

You dread completing your annual tax return, but the process gets more complicated when your personal and business transactions are on the same card. Separating the payments is painstaking, and your accounting manager will have to dedicate a chunk of time to the admin process. 

Complex overlap in personal and business payments or ‘grey’ areas can also lead to bookkeeping errors. When such errors are repeated or overlooked, the risk of financial audits or even fines from the IRS increases. 

Reduced cost-efficiency

When payments are taken from your personal account, it’s hard to keep tabs on how much is being spent. 

Imagine finding out that you have hugely overshot your budget in a specific department at the end of the year. You wonder,  ‘How did that happen?’ Actually, quite easily—employees expensed items that weren’t cost-effective, and the expense was missed amongst other payments. There goes your accurate budget forecasting for next year…

And, what about tax? It’s possible that you could be missing out on tax-deductible expenses if your bookkeeping is chaotic. 

Personal protection

Using your personal card for business immediately makes you liable for any issues that arise. Unfortunately, late payments and unarranged spending can damage your personal credit score, affecting your life outside of work. In the worst scenarios, your personal assets could be seized in lawsuits and family accounts or co-owned property, such as your home, could also be liable for seizure. 

Business cards protect your personal assets from business disputes and give you peace of mind that work issues won’t creep into your home life. 

The sole burden of responsibility

As the personal credit card owner, you’re the one person who can ultimately sanction spending and manage payments. This feels increasingly impossible in a growing company that manages hundreds of employees and multiple purchases daily. 

But what’s the alternative? Sharing your personal card details with a trusted few employees might feel like a relief at the time but could end in maverick spending and, at worst, fraud. 

When it’s all on one person, processes are inefficient and business stalls. Business credit cards allow the burden of responsibility to be shared strategically with employees. 

If there are so many risk areas, are there any circumstances when a personal credit card is acceptable to use?

When can a personal credit card be used for business?

The key word is—sparingly. You’re no longer in a position to set up regular payments on your personal credit card. There are too many high-volume payments. 

However, some infrequent use of your personal card for business transactions is understandable and even unavoidable at times. In fact, 53% of small businesses use both personal and business cards. For example, you may pay for a client dinner or office decorations with your personal credit card if you don’t have your business card with you. 

It’s good practice to question what you intend to use the card for. If it’s a low transaction volume or a one-off purchase, a personal card will work fine. You should keep records of the date and amount of this payment to make tax returns easier. 

For regular payments, a dedicated business credit card is more beneficial. Here are the main circumstances that call for a business card over personal credit. 

When to use a business credit card instead of a personal card

Business credit cards will make more sense for many of your regular, sizable purchases, and they’re also a great way to optimize spend management. 

In the following four areas, a business credit card can be the difference between significant savings and detrimental cost waste. 

Building credit 

If you’re expanding your successful business, you need credit. One of the best ways to build your credit score is to use a business credit card. 

Over time, a good credit rating will give your business access to better interest rates and better terms on loans you may need to take out in the future. Using a personal card, however, won’t necessarily gain higher-scale loans for your business investments. 

There’s also a clear divide between your business and personal account; you can have a higher credit utilization ratio on a business card, for example, without it impacting your personal credit score. 

SaaS management 

Expense reimbursement processes are a headache. They’re time-consuming, error-prone and can expose the company to expense fraud. 

Personal credit card use also opens the door to maverick spending and Shadow IT—some of the prime causes of cost waste. Small business credit cards enable employees to safely and efficiently spend carefully allocated budgets. 

Imagine a smooth SaaS purchasing, where automated approvals have been received and an employee can use the allocated budget to make a purchase easily on the business card. Just think how much time would be saved by reducing the payment bottleneck. 

Several SaaS contract renewals in the same week? Not a problem with higher spending limits on your business credit card. Your vendor relationships will benefit from timely subscription payments, too. 

Detailed reporting and expense tracking

You might think that giving multiple employees access to the corporate card will lead to scattered spending. However, expense tracking is streamlined with business credit cards. It’s all visible in one place. 

Even better, as well as issuing a detailed monthly statement, many card issuers provide SMEs with online tools that have reporting and expense-tracking features. 

These platforms enable businesses to view transactions, payments due and any interest charges or fees. The best versions of these tools issue regular reports of card activity and analysis of expenditure types that can be integrated into other accounting software used by your company for holistic cost management. 

Business-specific rewards

Your personal card might offer you some tempting rewards, but corporate credit cards reward your business itself

These rewards are more aimed toward business spending and encourage company growth. For example, you could access cashback on eligible purchases or reward programs for common purchases such as fuel, office supplies and travel. 

Some of the most highly rated business credit cards allow you to tailor your rewards to your business needs by selecting your own bonus categories. Best of all, these rewards are not taxable and are considered rebates on items you purchased with your business credit card. 

What are the legal considerations?

All businesses, including corporations and LLCs, are eligible for business credit cards. So, what are the key legal considerations when finalizing your choice?

Legal protection

The CARD Act of 2009 is a powerful consumer protection law that assures cardholders that the issuer can’t raise APR without cause or fair warning. This law doesn’t apply to most business credit cards; however, many now offer similar consumer protections to those of competitors. Do your research to ensure your purchasing protection is the best it can be.

No one likes to consider the worst-case scenario, but if your limited business goes into liquidation, your personal finances will be more protected if company spending is mainly via your business credit card. 

Personal liability

Business cards offer more protection of your personal assets, but many issuers request a personal guarantee before your credit card is approved. 

A personal guarantee is a legally binding commitment whereby you agree to accept responsibility for paying the credit card if the business cannot do so. This protects the card provider from any risk of non-repayment. If your business falls behind on repayments, you will become personally liable for the debt and this can affect your credit score.

Corporate cards, given to corporations with significant assets and credit history, do not usually require a personal guarantee. 

Tax

Mixing personal and business spending is a nightmare when it comes to tax return season. A business credit card keeps purchases separate and organized, making account-keeping much easier in the long term. 

Employee purchases can be identified easily, reducing oversight errors on your tax forms. This means you’ll avoid costly fines and produce an accurate tax return. The IRS levies strict fines for failing to report precisely and the possibility of being audited rises for businesses with poor record-keeping practices. 

Using a dedicated corporate card makes it clear where tax deductions can be taken advantage of. This improves your cost avoidance metrics and releases more budget. It’s also worth noting that the interest you pay on a business credit card is tax-deductible when used solely to make business purchases, helping your company gain back costs for growth.

Takeaways

If you’re still juggling between personal and business credit cards, the decision comes down to what’s best for your company’s growth and sustainability. The advantages of using a business credit card become more apparent as your company scales.

  1. Mixing personal and business expenses can lead to accounting errors, increased audit risk, and tax headaches.
  2. Business credit cards offer tailored rewards, such as cashback on fuel or travel, specific to your company’s needs.
  3. By using a business card, you can build your company’s credit rating and access better loan terms.
  4. Personal cards can impact your credit score, whereas business cards separate personal and company liabilities.
  5. Business cards streamline expense tracking and simplify tax reporting, keeping everything in one place.
  6. You can assign employee cards, improving budget control and reducing the risk of overspending.
  7. While higher interest rates can be a downside, the financial protection and rewards outweigh the costs for most growing businesses.

In the end, a business credit card is not just a financial tool—it’s a way to foster long-term growth, control expenses, and ensure your company’s financial practices are on solid ground. It’s time to take the next step and make the right choice for your business’s future.

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