Using personal credit cards for business is generally not a good idea for a number of reasons. It might seem easiest to throw a few business expenses on your personal credit card; it can be wiser to apply for a separate business credit card to use solely for business purposes.
One of the most important reasons not to use personal credit cards for business is to avoid the mingling of your business and personal finances. Keeping the two as wholly separate entities comes with a number of benefits and helps avoid a number of potential problems.
Can I use personal credit cards for business?
Mixing your personal and business finances can result in problems for your personal finances and vice versa, according to the According to the U.S. Small Business Administration (SBA). The corporate veil no longer protects your company, SBA says, and business issues can affect your personal finances.
Bookkeeping can also be a problem if you mingle business and personal finances and credit card use.
At the very least, having a business credit card used only for business purposes makes it much easier and simpler to calculate your purchases come tax time. You will no longer have to go through your personal credit card statement and try to discern what expenses belong to the business side. All business credit card transactions count as business expenses, with the same holding true for your personal credit card.
Should I keep separate personal and business credit cards?
In addition to the benefits of easier bookkeeping and financial protection, having a strictly business credit card for business purposes can build up your business, SBA explains. Establishing a strong line of credit and a positive credit history for your business can help you secure loans or other financing in the future. A business credit card helps the credibility of your business, establishing it as a viable company that is important enough to have its own line of credit.
What should I look for in a business credit card?
You want your business credit card to reflect only on your business finances, which means you are better off with a business credit card that does not make you give a personal guarantee, according to SBA. Although it may be tough to find a credit card company that extends business credit to a newly established business without a personal guarantee, they do exist.
Business credit cards can be easiest to obtain if your business shows substantial income or has strong credit ratings. Another thing to make sure is that the credit card company reports your business credit card payments and other activity to the credit files of your business, rather than those linked to your personal credit history.
What caveats come with business credit cards?
Business credit cards can carry the same type of penalties and fees as consumer credit cards, but they also come with an additional caveat. Penalties may include those for late payments, exceeding your credit limit or missing a payment altogether. Fees can include annual or membership fees for simply holding the credit card even if you do not use it and a number of transaction fees. These may apply to purchases, credit card cash advances, or even asking for a higher credit card limit.
Reading and understanding the fine print is imperative before signing any type of credit card agreement.
A major caveat with business credit cards is that they are not covered by the Credit Card Act of 2009, according to CNBC news. This means businesses are not protected the same way consumers are with personal credit cards with a restriction on penalty fees. It also means business credit cardholders may be subject to interest rates that are highly unpredictable and can change at any time.
Watch for lower credit card interest rates that suddenly soar to high rates after an introductory period is another thing to watch for with business credit cards, as is making sure not to apply for too many credit cards at one time, SBA advises. A large number of business credit card applications can affect your business’s credit ratings and cause credit card companies to wonder why you submitted such a large number of applications. Apply selectively and do your research.
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