Using a personal credit card for business expenses may seem like a convenient way of covering unexpected costs. However, it can quickly confuse your accounting team and make separating business and personal funds difficult.
This article will unpack common questions like "Can you use a business credit card for personal use?" Here's everything you need to know about using a personal credit card for business expenses.
Can you use a personal credit card for business?
Technically, you can. However, you should not use a business credit card for personal use.
Using a personal credit card for business expenses can cause problems with your card issuer, lead to bad credit history with the credit bureaus, and create all sorts of other issues for your business.
Every time you pay business expenses on a personal credit card, you complicate financial management. Your personal expenses and business obligations will become jumbled together.
Keeping business and personal expenses separate is vital for tax purposes.
However, many business owners frequently put company expenses on personal credit cards. Why do they do this? There are a few reasons, including:
- Convenience. Personal credit cards are readily available, and using them instead of business credit might seem easy.
- Rewards. Many personal credit cards offer business owners attractive rewards.
- Credit availability. If a business has limited credit, the owner might rely on their personal card to cover expenses.
If you've just started your business and still need to build up business credit, relying on your personal card to cover some expenses may seem necessary. However, you should explore what business credit cards offer before straining your personal card.
After you've completed the account opening process, you can start building your business credit history. Many business credit card issuers offer some of the same perks as personal card issuers.
Most business credit cards offer cash back, travel points, and more.
Business credit cards offer more spending power, bonus rewards, and other perks that consumer cards don't provide. While business credit cards may have a higher annual fee, many have flexible fee tiers. Speak to your card issuer about getting a card for business purposes and avoid the headaches of using a personal card for business.
6 reasons you shouldn't use your personal card for business
Here are some reasons you shouldn't be using a personal credit card for business use.
1. Your personal and business finances will become jumbled
You should always keep your personal funds separate from business spending. Otherwise, it can be challenging to differentiate between money that belongs to the business and funds that are yours. The same concept applies to debt. You want to ensure the lines between business and personal debt are clear.
You can't categorize business expenses if you use your personal credit card. Tracking each type of expense is critical for identifying where your costs come from.
For example, you need to know how much you are spending on payroll, fuel, materials, marketing, and other business costs. The best business credit cards help you categorize expenses and better understand the company's financial health.
2. Tax filings will get a whole lot more complicated
As a business owner, you have to file personal and business taxes. The IRS requires a clear separation of each set of expenses for tax purposes. Using a personal credit card for business expenses can make it harder to deduct eligible purchases from your income. If you get audited, you could face fines or other penalties.
If you stick with a dedicated business credit card, you'll be able to automate key reporting processes. Many business credit cards also offer expense tracking and other tax reporting perks.
3. You will incur personal liability
Every time you use personal credit cards for business expenses, you’re personally liable. This means that if your business encounters financial difficulties, the creditor could pursue your personal assets to settle your debt.
Business credit cards tend to offer protection over your personal assets. However, it's essential to read the terms carefully. Some card issuers include a personal guarantee in card agreements. This means that to get the card, you must make a personal guarantee to pay the bill out of your own assets.
4. Business expenses can increase your credit card balance
A personal card typically has a lower credit limit than a business card. Company transactions tend to be higher than personal purchases, meaning you'll reach your credit limits sooner.
If your card utilization rate gets too high, it could negatively impact your personal credit score. If you miss payments, consumer credit bureaus will add it to your personal credit history and make it harder to get a loan in the future.
Business credit cards typically have higher credit limits. Each business card is tied to your business credit report, not your personal score. Your personal score will not be impacted even if your utilization rate gets too high.
Pay close attention to your utilization limit if you must use personal credit cards for company charges. Try to keep your utilization rate under 50%. If you exceed this threshold, pay down your personal card as soon as possible.
5. Using a personal card can appear unprofessional
Vendors and partners might think it's unprofessional for you to mix business and personal expenses.
As a business owner, your reputation is everything. You must position yourself as a professional, especially when dealing with prospective partners and clients. If those you interact with question the legitimacy of your business, they may be less willing to work with you in the future.
A dedicated business card increases your company's credibility and trustworthiness. Business credit cards give the appearance that you are a serious entrepreneur.
6. Personal cards don't offer adequate protection
Personal credit cards don't offer any of the protections an entrepreneur needs. You can't categorize expenses or track transactions with the same level of specificity using a personal card. Business credit card issuers offer a much higher level of customer service and are accustomed to catering to the needs of entrepreneurs.
The top card issuers offer other services designed specifically for businesses. You can access products like lines of credit, expense tracking tools, and much more.
A personal credit card simply isn't a good option for covering business expenses. Get a dedicated business credit card as soon as you start making regular purchases for your business venture (i.e., buying materials at office supply stores or paying for online advertising).
Risks of employees using personal cards for business expenses
Allowing your team to use personal credit cards for business expenses can introduce additional risks and complications.
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Delays with reimbursement
Employees might face financial strain if there are delays in reimbursement for business expenses charged to their personal cards. This can affect employee morale and satisfaction.
However, you cannot hastily issue reimbursements without verifying that a charge was for business purposes. This means collecting receipts from workers and ensuring their reimbursement requests align with company policy. These additional steps increase the administrative burden on your accounting team.
Expense tracking issues
Tracking and reconciling expenses becomes more challenging when employees use personal cards. You are more likely to encounter discrepancies and inaccuracies in your financial records.
You need to be able to categorize expenses so that you know how much you are spending on fuel, supplies, and other business needs. If you have to collect credit card transaction records and receipts from multiple employees, it will become nearly impossible to track and categorize all of your expenses accurately.
A business credit card will keep each employee's personal expenses separate from the company's expenses. You can look up card details for each worker, track statement credits, and more.
Potential for misuse
Using a personal card for business opens the door for misuse. If you give a team member your personal card for business purposes, they may be tempted to use their spending power to buy unauthorized items.
The best business credit cards allow you to issue each employee a separate business credit card. By issuing free employee cards to each person, you can attribute purchases to specific employees and discourage misuse.
Frustration among workers
Any time an employee makes a business purchase with their personal card, there's a potential for friction between them and the company.
For example, if you don't reimburse a worker in time for a significant expense they put on their card, they may be late on their payment, and the issue is documented on their personal credit report. In turn, the credit bureaus lower the worker's score.
That's just one potential problem that can arise when employees use their credit cards to buy office supplies or conduct other business transactions.
Another issue is that their personal credit card issuers might flag their personal account. When this happens, the transaction could get denied, their credit cards might get locked, and the entire incident could spill over into their personal life.
Administrative headaches
Letting employees conduct business spending on personal cards can create all sorts of administrative headaches for your team. You will have to collect receipts for all transactions, verify that the charges are for eligible purchases, and issue reimbursements.
The entire process can substantially increase your administrative workload and drive up accounting costs.
Compliance challenges
The bottom line is that employees should never use their personal credit cards to cover business expenses. Don't allow them to use a shared business card, either. Any person who is permitted to make purchases on behalf of your company should have a business card assigned directly to them.
How to use the BILL Divvy Card for business expenses
Corporate cards can help you avoid all the hassles of mixing personal and business expenses. Top solutions like the BILL Divvy Card powered by Visa can also help you maximize cash flow, track business expenses, access the funding you need, and obtain legal protection against fraud.
The BILL Divvy Card has many advantages a traditional business credit card simply doesn't offer. We provide flexible underwriting and integrate our credit lines seamlessly with BILL's robust software.
You can issue a separate BILL card to every authorized employee without an additional annual fee, making it easy to categorize and monitor charges without relying on spreadsheets. We even offer business consulting services.
Get started with BILL and explore our BILL Divvy Card.
Using personal credit card for business: FAQ
Is it illegal to use a personal credit card for business?
No, it's not illegal to use a personal credit card for business expenses. However, you shouldn't use one because it may complicate financial management and tax reporting processes. You may also incur additional personal liability.
Mixing personal and business finances can lead to issues during tax audits and make tracking and managing business expenses challenging. Use a business credit card instead.
Can you use a business credit card for personal use?
Using a business credit card for personal expenses may violate the card agreement's terms.
Carefully read the terms and conditions your business credit card issuers laid out to find out what is and isn't allowed. If you violate the terms, they may cancel your business card, meaning you will lose access to that line of credit.
Using your business credit card for personal purchases may also cause issues with the IRS.
¹ The BILL Divvy Card is issued by Cross River Bank, member FDIC, and is not a deposit product.
