Can you use a personal credit card for business expenses?

Technically speaking, you can use a personal credit card for business expenses.

‍

While it’s legal to use your personal card for business expenses, the practice puts your personal credit score and assets at risk if your business runs into debt. Putting business expenses on your personal credit card also makes it hard to track business expenses when tax season rolls around. Using a business credit card to keep your business expenses separate is always recommended.

Reasons for using a personal credit card for business expenses

As a sole proprietor or small business owner running a startup, it may be convenient to use your personal card for business purposes (like office supplies). However, filing small business taxes can be a nightmare if you have to manually track business vs. personal expenses.

‍

Unless you make the separation clear, your personal finances may also end up taking a hit if your business does. 

Reasons for using a personal card

We get it: there are times when using your personal credit card instead of your business credit card may be unavoidable. 

‍

Like, for instance, when you’re out for a client dinner and realize you’ve forgotten your corporate card. When it comes time to pay, you have to reach for your personal credit card to pay for the meal instead of the card designated for business expenses. 

‍

Alternatively, there may be situations where you have both your personal and business cards on you when paying for a business expense, but find yourself beguiled by the prospect of the perks or incentives you’ll earn by using your personal credit card—so you use that one instead. 

‍

Yet another scenario is that you simply have no choice—you have to use your personal card because you don’t qualify for a business credit card or line of credit. 

Risks of using a personal card for business expenses

The main risk of using your personal credit card for business is that you have fewer legal protections should your business become insolvent.

‍

Using a personal consumer credit card for business opens entrepreneurs up to personal liability for business expenses, which can damage your personal credit score and even lead to legal action. One of the main reasons corporate structures exist is to protect your personal assets from possible business disputes, but you throw consumer protection out the window when you mix your personal and business finances together.

‍

That can have serious legal repercussions for you, and some of these possible scenarios could become reality: 

• Your personal assets could be seized in a lawsuit targeting your business.
• Family accounts and co-owned property like your home could be liable for seizure.

‍

In addition to making yourself liable, mixing up your personal and business finances can damage your business. Using a personal credit card for business expenses complicates finances. It confuses credit bureaus, creating room for potential bookkeeping errors and credit reporting disadvantages, especially as you scale up your business.

‍

This is especially true if you operate a nonprofit, which has its own unique tax and bookkeeping requirements. Using a separate business credit card for your nonprofit is highly recommended.

‍

All of the reasons for using a business credit card over a personal card for business expenses also apply to banking. It’s imperative to set up a separate business bank account and checking account that isn’t commingled with your personal one. All of the major banks and lenders offer business checking accounts (e.g. Chase, Capital One, Wells Fargo, etc.), but some are more ideally suited to the needs of small businesses than others.

Can employees use their personal cards for business?

Employees can use their personal cards for business as well, but it’s not the best idea. In many companies, employees can use their personal cards for business expenses, and then file for reimbursement afterward. As long as the use is authorized and a simple expense reimbursement process is established, this shouldn’t be a problem.

‍

But the process of filing and approving expense reports can be frustrating for employees while wasting time and resources. When employees use personal cards and are later reimbursed, the employees’ credit lines function like de facto business loans. This system isn’t ideal, especially if you plan to scale your company and handle many employees’ expenses.

‍

It’s much better to empower employees by giving them business expense cards with built-in spending limits and automatic receipt matching. Using business credit cards for employees can streamline your accounting and expense tracking, not to mention the card perks or rewards that you may accumulate from employee spending that you miss out on when your employees use their personal cards.

What to use instead: Advantages of using a business credit card

To avoid jeopardizing your financial well-being, you need a business card with no personal liability. 

‍

Personal liability (also known as a personal guarantee) is a requirement for some business credit card issuers; it makes the key business owners personally responsible for debts incurred in the business's name. This form of collateral helps reduce the risk taken on by the creditor, and it's why a business credit card may affect personal credit. But it can also create problems for the cardholder.

‍

Fortunately, these days, the best business credit cards offer more features and terms that are better suited to the challenges associated with running a small business. 

‍

Regardless of the business credit card you choose, they all share a handful of advantages over personal credit cards:

‍Build business credit

From small, everyday business purchases to large-scale loans, your business needs credit to function. One of the primary ways to demonstrate creditworthiness to lenders is to keep your business credit history and credit score strong. One of the best ways to build your business credit score (especially as a new business) is by using a dedicated business credit card.

‍

Building business credit over time allows your business to access better interest rates and terms on any loans you may need to take out. If you use a personal credit card for business expenses, you won't be helping your business credit, and you may regret this if you ever need to take out a business loan for equipment, real estate, or other larger business expenses.

Improved security

Because of the Federal Trade Commission’s Credit Card Accountability Responsibility and Disclosure Act of 2009, security measures protect business credit cards. While the measures set out in the CARD Act apply specifically to personal cards, they also bind a majority of corporate cards. Plus, legislation to increase corporate cards’ protections is in the works.

Lower costs

Many business credit card companies have fees associated with registration and yearly renewal. But some credit cards have no annual fees (or interest rates) and operate at low or no cost to you.

Cashback incentives

Some corporate cards help you find value by incentivizing business spending with cashback rewards programs up to a certain limit. These programs allow you to redeem business cash rewards when you make certain eligible purchases (often from predetermined bonus categories).

Partnered promotions

Financial institutions typically partner with several retailers, offering special intro APR and other rates, free employee cards, bonus points and credits, and other discounts. These can be especially helpful if your business is just starting, or if you need to make a large purchase and could benefit from a lower APR or more time to pay.

Spend management platform

Finally, the best corporate card companies offer additional ways to help you save, without incentivizing spending. This could be through an expense management platform and a suite of tools that analyzes your company’s spending in real time, finds areas to cut costs so you can improve your budgeting, reduces maverick spend, and boosts your bottom line.

Higher credit limits

Running a small business can be expensive, so having a card at your disposal that can cover some of these costs is essential. The best business credit cards are purpose-built for the demands of running a business, and that includes generally higher limits than personal credit cards. 

‍

Is it illegal to get a business credit card for personal use?

While using a business credit card for personal expenses may not be illegal per se, it's generally not recommended due to the potential consequences and complications it can create.

‍

Specifically, charging personal items to your business credit card can violate the terms of the agreement you have with the issuer. Violating these policies could lead to penalties, account closure, or other consequences.

‍

Also, mixing personal and business expenses in your credit card usage can complicate your accounting and tax reporting. It's generally advisable to keep personal and business expenses separate for tax purposes.

Can I write off business expenses paid from my personal account?

Though it’s not ideal, if you already used a personal credit card or bank account to pay for a business expense, you can still write off the expense at tax time. Any expense deemed necessary for business purposes can be expensed and, therefore, is tax-deductible.  

‍

Can I turn my personal credit card into a business card?

This depends on the card issuer - you may be able to switch an existing personal credit card to a business credit card. But be aware that closing a personal credit card could affect your credit score, so consider your options and verify if the personal credit card account will be fully closed out, or transformed into a business card. There may also be stipulations around balance transfers, since not all business credit cards allow balance transfers.

‍

Discover Ramp's corporate card for modern finance

Learn more

How to use Ramp’s corporate card for your business expenses

We’ve established that it’s not a good idea to go around charging business expenses to your personal credit card, and to use a business credit card instead. If you’re in the market for an all-in-one business card solution, Ramp’s corporate card may be exactly what you’re looking for. 

‍

Our corporate charge card comes packaged with a comprehensive set of expense management tools that allow you to keep track of your finances in real time, plus a variety of handy budgeting and reporting features. 

‍

If you’re looking to separate your business-related finances, consider Ramp's corporate card. We don't perform a credit check, and there's no personal guarantee required.‍

‍

Submitting an application for Ramp takes as little as five minutes, and you’ll find out if you’re approved in as little as two business days.

‍