Using Personal Credit Card for Business Expenses

It’s fairly common to use a personal credit card to pay for business expenses, especially for startups and other small businesses that can’t qualify for a business loan or credit card.

But while this approach can be convenient, using a personal card to fund your business can affect your tax deductions, credit score and even liability.

Personal vs. business credit cards

Both personal and business credit cards allow you to charge expenses as needed up to a predetermined limit, with your available credit replenishing as you pay off your debt. However, business and personal credit cards have a few key differences, including:

• Eligibility criteria: Personal credit cards determine your eligibility based on your income and personal credit history. To qualify for a business credit card, both you and your business will need to meet certain criteria, including personal and business credit requirements.
• Tax implications: On a personal card, you’re personally responsible for paying any fees and interest. But with a business card, fees and interest are typically tax-deductible as business expenses.
• Impact on your credit score: Timely payments made on personal cards can boost your personal credit score, while missed payments can hurt your score. Unlike a business credit card, personal credit cards won’t help you build business credit — even if the card is being used for business purposes.

When a business credit card is the best choice

If you’re trying to decide whether a personal or business credit card is better for your situation, we’ve got you covered. Here are some situations where a business credit card may be a better choice:

• You need a higher credit limit: Personal credit cards typically come with lower credit limits than their business counterparts, so if you need to cover expensive or extensive costs, a business credit card might be better suited for your needs.
• You need help tracking business expenses: Business credit cards make it easy to track and categorize your expenses, allowing you to easily see how much you’re spending on inventory, marketing and other business costs. With a personal credit card, you’ll need to manually track your business expenses.
• You need to give credit cards to multiple employees: With many business credit cards, you can request cards for multiple authorized users, making it possible for multiple employees to charge business expenses to the same account. With a personal credit card, adding additional cards and users usually costs extra.
• You want to protect yourself from liability: If you own a limited-liability company (LLC), keeping your business and personal expenses separate will be crucial to protecting your personal liability. If you mix these expenses and someone sues your business, you could put your personal assets at risk.

When to consider a personal credit card for business purposes

Although a business credit card is typically a better option, there are times when using a personal credit card for business purposes might make sense. Here are a few examples:

• You don’t qualify for business financing: If you’re struggling to qualify for a business loan or credit card, paying for your startup costs with a personal credit card may be a good option.
• Your business expenses are relatively low: If you’re running a small business and your costs are low and spread across different areas, you may generate rewards more quickly with a personal card. The perks offered by business cards are more likely to be restricted to specific categories, like travel or office supplies.

Pros of using a personal credit card for business

There are a few benefits to using a personal credit card for business expenses.

Flexible use of funds

A business credit card is usually intended for business purposes only. Charging personal expenses to your business card could result in the card company closing your account.

In comparison, personal credit cards typically set no limitations on what you can purchase. You can freely swipe away, later highlighting which expenses you want to claim as business deductions. This ease of use may be appealing to business owners who are just getting started.

Better legal protections

Consumer credit cards generally offer higher levels of protection thanks to two acts:

• Credit Card Act of 2009: This prevents credit card companies from raising APR rates unexpectedly. In fact, they can’t change your rate until the account has been active for at least one year, after which they must give 45 days’ notice outlining any upcoming increases. Companies are also prohibited from charging consumers excessive fees or penalties.
• Fair Credit Billing Act (FCBA): This protects you in case of credit fraud by limiting your liability for a lost or stolen personal credit card to $50. Higher amounts are covered if you communicate the incident within 60 days.

Most business cards are exempt from these acts. Card companies may still offer rate increase and credit fraud protection on business cards, but it’s not required by law.

Longer introductory periods

Both personal and business credit cards can provide appealing introductory rates and offers, but the introductory period tends to last longer with a personal card.

For example, the Chase Freedom Unlimited^® Credit Card offers 0% Intro APR on Purchases for 15 months intro APR on purchases and balance transfers for 15 months. Introductory periods on business cards typically last for less time and don’t apply to balance transfers.

Cons of using a personal credit card for business

Although using personal cards for business purposes can be attractive, it’s important to recognize the drawbacks.

Lower borrowing limits

Personal credit cards tend to have lower limits than business credit cards. This is because lenders consider your business revenue, personal income and overall creditworthiness on your business credit card application.

You can access more funds with a business card if you have a high business revenue and a solid credit score. You can also consider a high-limit personal credit card or a business line of credit if you need more borrowing power.

Complicated tax prep

A significant downside of using personal credit for your business is that it adds extra work when doing your small business taxes. Although it’s possible to scour your statements for eligible expenses, having a dedicated business card could simplify this process and make your bookkeeper’s job easier.

Plus, it looks better to have all business purchases on a dedicated card in case of an IRS audit.

You can also potentially deduct paid interest as a business expense, but only if it was on a business credit card.

Not ideal for multiple employees

A personal credit card might be enough to meet your needs if you’re a solo entrepreneur or a startup. However, if you want to be able to distribute company cards to multiple employees, it’s probably best to go the business route.

With a business credit card, you can create an account manager to manage spending limits and oversee all purchases. In addition, all of the cardholder’s rewards pool together — which can go toward a company retreat, new equipment or holiday bonuses.

Doesn’t build business credit

Building your business credit is essential if you want to be able to access funds in the future. To qualify for financing, lenders will often consider both scores — personal and business — and if one falls short, your loan application could get denied.

Opening and maintaining a business credit card can help you establish and strengthen your business credit score, opening the door for more options for small business loans. While timely payments made on personal cards can boost your personal score, these cards won’t help you build a credit history for your business.

Missing out on exclusive business rewards

Both personal and business cards offer sign-up bonuses and rewards. However, business cards tend to keep rewards focused on business-related expenses. For example, the Ink Business Cash^® Credit Card offers 1% - 5% cash back, including cash back for purchases at office supply stores, internet, cable and phone expenses.

By going with a personal credit card, you could miss out on business rewards that could save you money in the long run.

Tips for using a personal credit card for business expenses

If you’ve decided to use a personal credit card to pay for your ongoing business expenses, here are some tips that can help you use your card responsibly.

• Pick one card for your business spending: It’s important to keep your personal and business costs as separate as possible, so if you choose to charge business costs to a personal card, be sure to use that card only for business purposes.
• Pay your balance in full each month: In addition to hurting your credit score, late or missed payments can cost thousands of dollars in fees and interest. To avoid this, the best practice is to keep your credit utilization low by paying your entire statement balance before the due date at the end of every month.
• Take advantage of available rewards: Many credit cards offer rewards and cash back. Make sure you take advantage of these perks, which typically won’t expire as long as your account remains open and in good standing. Earning cash back and other rewards is one of the biggest advantages of using a personal card for business costs.
• Keep track of business expenses: For tax purposes, keep a record of any and all business expenses you charge to your personal card. This will save you valuable time and energy when the time comes to file your taxes.

Alternatives to credit cards for business expenses

Credit cards aren’t the only way to pay for your business expenses. If you don’t qualify for a business card, you have options beyond using your personal one. Here are some other ways to fund your business:

• Business loans: If you’re looking to fund a large purchase, a business loan may be a better option.
• Personal loans: Much like personal cards, personal loans use your personal credit and income to qualify you for financing. But although this type of financing can put your credit score (and even your personal assets) at risk if you fail to make your payments, personal loans typically have lower interest rates than credit cards.
• Crowdfunding: Crowdfunding involves asking for donations to kickstart your business. Unlike with a personal credit card, the funds you receive typically won’t need to be repaid — though you may have to pay a fee to your crowdfunding platform.
• Peer-to-peer lending: If you have a particularly unique or marketable business idea, finding individual investors may be easier than qualifying for small business financing. Online, peer-to-peer platforms can help you find potential investors. Just keep in mind that this type of financing can take longer to fund.
• Small business grants: Government agencies, nonprofit foundations and private corporations offer small business grants you may be able to use to fund your business. Competition for these grants can be fierce — but if your business wins out, you can secure the necessary funds with no obligation to repay the debt.