If you are a business owner, you will probably have both a business credit card and a card for personal use. But if you have been caught short at the checkout or need a little extra credit to pay for a vacation or other large expense - you may have been tempted to start using a business card for personal use.
There are legal consequences for business credit card personal use, but most business card issuers prohibit using a business card for personal expenses. And as a result, you may find that you face issues when it comes to filing your business taxes for the next year.
Below we will look at what you need to know about business card personal use and why using a business card for personal expenses is not a clever idea.
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The Difference Between a Business Card and a Card for Personal Spending
Your business account card is intended to be used to cover your business expenses solely and helps business owners to keep their personal and business finances separate. This can prove extremely helpful when tax season rolls around, as you'll find it easier to identify all your tax-deductible business spending throughout the year.
If your company begins to grow you can also add employees as authorized users on your business account and begin to access larger lines of credit to reflect your increased turnover. You can also access benefits such as reduced shipping costs, and loyalty points.
However, one of the downsides is that business accounts are not subject to the same consumer protections as personal cards. This means you could be subject to large late fees and APR increases on your balance without recourse.
Personal credit cards are made available to cover your everyday spending on household expenses and leisure activities.
Is Business Credit Card Personal Use Illegal?
Using a business card for personal expenses is not illegal. But you could find you soon run into complications if you regularly use your business card for personal use and household purchases. If this is a one-off occurrence, then it shouldn't be hard to make a note to adjust your expenses total when you file your taxes. But if this is a regular occurrence you could soon become overwhelmed with picking and choosing between personal and business spending.
Do Card Providers Prohibit Using a Business Card for Personal Expenses?
A lot of credit card issuers also prohibit paying with a business card for personal use in the terms and conditions you agree to when a company applies for a business.
The American Express Blue Business Cash Card, for example, states that: "ALL CARD(S) ISSUED ON THE ACCOUNT WILL ONLY BE USED FOR COMMERCIAL OR BUSINESS PURPOSES.”
If you violate these terms and utilize your business card for personal use, your card provider may cancel your card or limit how much you can spend on the card. This could also result in losing all the points and rewards you have built up on the card through legitimate business spending.
Why Should You Avoid Business Card Personal Use?
If your card provider doesn't prohibit business credit card personal use, there are still reasons that you should make sure to keep your personal spending separate from your business expenses. As we discussed above, when it comes time to file your tax returns - you'll have a much easier time when it comes to providing accurate business expenses on your filing.
But you should also be concerned about how business credit card personal use can affect your ability to build up a healthy credit score for your company.
How Can Using a Business Card for Personal Expenses Affect Your Credit Score?
A business credit card is an excellent way to build up a good credit score for your business. This will then result in better benefits and larger credit limits for your company. But if you are going to build a great credit history that will be reported back to the credit bureaus, you need to keep your payments prompt and try to limit your Credit Utilization Ratio. Increasing spending on your business card for personal use will make glowing credit reports more difficult to accomplish.
Business credit cards for larger organizations are corporate cards and will be connected to a business tax history. However, freelancers and small business owners may have a business card that is connected to their personal credit history.
So, if you put extra strain on your company accounts with business card personal use, you could negatively affect not just your business credit, but your personal credit score as well!
You May Become Liable for Business Debts and Responsibilities
Muddying the water between your business and personal finances could have dire consequences if your business falls into debt or legal issues. This action can allow courts to hold you personally responsible for any liabilities your business incurs, as you have already demonstrated that your personal and business accounts are interchangeable.
Summary: Can I Use My Business Credit for Personal Expenses?
Although using a business card for personal expenses can seem convenient at times, it is always best to keep your personal and professional finances separate. Not only will your business credit score benefit, but you will be following the card issuer policies you agreed to when applying. You'll also have an easier time organizing your accounts when filing your tax return.
Perhaps the biggest argument against utilizing a business card for personal use is that you are mixing your personal and business funds in the eyes of the court. If you run into business trouble later down the line, you may find that business card personal use could end up costing you a lot more in terms of personal liability for business debts.
So, it is always best to play it safe and make sure that your business credit cards and credit cards for personal use remain strictly separate and are only used for their intended purposes.
The Difference Between Business and Personal Credit?
When it comes to credit, there is a big difference between Personal Credit and Business Credit.