When you have a business credit card with a high limit and an attractive interest rate, it’s hard to resist pulling it out to pay for a few personal expenses. After all, you might get a better deal with the business card than with the personal card.
And what’s the worst that could happen if you do use a business credit card for personal expenses? Even though most business credit card issuers have card agreements that emphasize that you shouldn’t charge personal expenses, practically speaking there are few real consequences.
For the most part, it’s better to avoid using a business credit card for personal expenses. Here’s what you need to know about business credit and personal expenses.
Reasons to use a business card for personal expenses
Even though it’s not the best practice to use a business card for personal expenses, there are reasons some business owners like turning to their cards.
- Build points faster: If you’re having trouble racking up the points with business spending, adding personal expenses can help you earn rewards faster.
- Protect your personal credit utilization: In many (but not all) cases, business credit card issuers only report account activity to business credit agencies, so your personal spending on business cards might not reflect on your personal report, helping your personal score.
- Take advantage of better terms: Some business credit cards offer longer introductory periods, lower interest rates, and bigger signing bonuses. Putting personal expenses on your business card could help you take advantage of the situation.
Even though these advantages can be temptations to use your business credit card for personal expenses, there are downsides. Here are five good reasons to think twice about whipping out the business card for personal costs.
1. Your issuer could revoke your card
It’s not a common practice, but business credit card issuers are well within their rights to cancel your card if they detect patterns of personal use. You could find yourself without a business card at all if some algorithm alerts an issuer to a problem and they decide to act on it.
Not only that, but certain benefits might be downgraded if you use a card for personal use. So, even if you don’t lose your business credit card, using it for personal expenses could reduce some of the overall utility of the card.
2. Business cards don’t have the same consumer protections
The Credit Card Act of 2009 provided a number of protections to consumers, including protection from raising interest rates without notice and rules about applying payments to highest-rate balances first. However, the legislation left business credit cards out of those protections, so you could suddenly find yourself in a position with sky-high interest rates on balances.
A bill to expand similar protections to users of business credit cards was introduced in 2018, but it’s been languishing in committee with no movement toward actually becoming law.
If you pay off your credit card balances each month or only carry balances for a month or two, it’s not as important to have these protections. But if you sometimes carry balances for several months, the consequences could make a bigger impact on your overall finances.
3. Tax-time headaches
One of the biggest reasons to keep business and personal expenses separate is for tax reasons. If you put personal expenses on your business credit card, you have to separate them out when claiming deductions. You can’t just turn in your statements and expect deductions for personal expenses. The actual business expenses have to be separately identified.
When you use your business card only for business expenses, it’s much easier to identify eligible deductions — and prove them to the IRS during an audit. With personal expenses mixed in, the whole process becomes more difficult.
4. Mixing personal and business expenses raises red flags
Another concern is that when you mix personal and business expenses, you could raise red flags about your ability to handle business debt in the future.
Down the road, if you need a business loan to expand, a lender will look at your financial records. They’ll look at your business and personal credit reports, of course, but you’ll also have to share your bank statements and other financial information. What if they see that you regularly mix personal and business spending?
That can be a red flag because it might cause discrepancies. Not only that, but it might prompt a lender to think twice about your financial and business management skills. It might not disqualify you completely from a loan, but you might not get the interest rate and terms you prefer.
5. Could personal expenses bring your business down?
Finally, if your business card’s credit line is being used up by personal costs, it leaves you less room for your actual business expenses. If you suddenly need access to your credit line, but it’s not available because you’re still paying off personal purchases, it could impact your ability to effectively run your business.
Plus, the reverse is true. Maybe you’re forced to put unexpected business costs on your personal card. Once that happens, you’re suddenly liable for your business debt. Keeping things in their separate lanes can protect you personally and your business.
Keep business and personal expenses separate
For many reasons, it’s best to keep your business and personal expenses separate. Not only can using your business credit card for business costs streamline your bookkeeping and your tax preparation, but it’s just solid entrepreneurship practice.
While there can be some advantages when you use a business credit card for personal expenses, make sure you weigh them against the downsides. Carefully think about your future business and personal goals, as well as what you hope to accomplish with your credit cards. You might find that your long-term success is better served by keeping your business and personal finances completely separate.
This article was originally written on February 22, 2019 and updated on October 21, 2020.
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