Can you use a personal credit card for business expenses?

Technically speaking, you can use a personal credit card for business expenses, and many small business owners do. But that doesn’t necessarily mean you should.

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While there’s no law preventing you from using a personal card for business expenses, you lose the legal protections that come with a business credit card if your company runs into debt. You also have a tough time separating your business and personal expenses when tax season hits.

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For those reasons, using a dedicated business credit card is a widely accepted best practice. In this article, we get into more detail about the advantages of using a business credit card, when and why you might use a personal card for business expenses, and the risks involved.

Advantages of using a business credit card

We get it: As a sole proprietor, small business owner, or startup entrepreneur, it’s convenient to use your personal card for business purchases like office supplies or travel expenses. There might even be times when it’s unavoidable.

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But in addition to stronger legal protections and a clear separation of finances, there are other advantages to using a business credit card than a personal credit card. 

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Here are five important ones to consider:

1. ‍Builds business credit

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

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Building business credit over time allows your business to access better interest rates and terms on any future loans. You won't build business credit using your personal credit card for business expenses, which you might regret if you need to take out a business loan for equipment, real estate, or other larger business expenses.

2. Access to higher credit limits

Running a business can be expensive, so a line of credit to help cover costs is essential. The best business credit cards are purpose-built for the demands of running a business, including higher credit limits than personal credit cards. Data shows the average business credit card limit can be 30 times higher than the average personal credit card limit, giving you greater spending power.

3. Rewards programs tailored to business spending

Business credit cards tend to optimize their rewards programs for common business purchases like fuel, office supplies, and travel costs. So you stand to rack up more points, miles, or cashback on eligible purchases than you would with a personal credit card. Additionally, some cards let you tailor your rewards program by selecting your own bonus categories.

4. Free employee cards

Many of the most attractive consumer credit cards make you pay a fee for additional cards or authorized users. In contrast, business credit cards typically offer unlimited employee credit cards for free, plus additional features like customizable spend limits and employee expense monitoring. The best corporate cards offer unlimited virtual cards as well.

5. Spend tracking and expense management features

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

Why you might use a personal credit card for business expenses

All of that said, there are certain specific scenarios, where it might make sense for you use your personal credit card for business costs:

1. You don’t qualify: You may have no choice if your personal credit score is lacking. The lower your credit score, the fewer options you may have for a business credit card or line of credit. But as your score improves, you can always apply for one in the future.
2. You don’t plan on charging much: If your business expenses are relatively low. Say, for instance, you need it only for the occasional purchases. In that case, it might make more sense to stick to your personal card.
3. You forgot your business card: It happens. You’re out for a client dinner and you realize you forgot your corporate card. When it comes time to pay, you have to reach for your personal credit card instead of the card you’ve earmarked for business expenses.
4. You need to transfer a balance: Business credit cards don’t have very many options for balance transfers, so you’re better off sticking your personal card for that.

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

Can employees use their personal cards for business expenses?

Your employees can use their personal cards for business as well, but this often creates more problems than it solves.

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In many companies, employees can use their personal credit cards for business expenses and request reimbursement afterward. As long as the purchase qualifies as a valid business expense, and the company has a formal expense reimbursement process in place, this shouldn’t be too much of a hassle.

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It’s more efficient for everyone involved to issue business expense cards with built-in spending limits and automatic receipt matching. Giving your employees corporate credit cards can help streamline expense tracking—not to mention the card perks and rewards you’ll get from employee spending that you’d otherwise miss out on if they used their personal cards.

Risks of using a personal card for business

While there is a strong case for using business credit cards for business expenses, you may still decide to use your personal card or let your team use their personal credit cards. In that case, you need to understand the risks:

1. Fewer legal protections

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.

2. Personal asset vulnerability

‍One of the main reasons corporate structures exist is to protect your personal assets from possible business disputes, but you throw consumer protections out the window when you mix your personal and business finances together. That can have serious legal implications, which could lead to some unfortunate scenarios:

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

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In addition to making yourself liable, mixing up your business account and personal finances can potentially damage your business.

3. Administrative complications

Using a personal credit card for business purposes complicates your finances and confuses credit bureaus, creating room for bookkeeping errors and credit reporting disadvantages. 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.

4. Intermingled banking accounts

All the reasons for using a business credit card over a personal card also apply to banking. Opening a dedicated business bank account and checking account that’s separate from your personal accounts is one of the first things you should do when you start your business.

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All the major banks and lenders offer business checking accounts, including Chase, Capital One, American Express, and Wells Fargo, but some are better suited to the needs of small businesses than others.

5. Expense tracking, reimbursement, and misuse

If your employees are using their personal cards, it could cause headaches not just for reimbursing them for their expenses, but also in the expense tracking process, which becomes exponentially more complicated as your team grows.

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And not only that, the process of filing and approving expense reports can be time-consuming, error-prone, and opens you up to the risk of expense fraud. Relying on employees to front your business expenses could increase frustration and impact morale if you can’t keep up with reimbursement requests and employees can’t pay off their balances.

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

Now that you understand the advantages of using a business credit card, as opposed to the risks caused by using your personal credit card, it’s time to think about the solution for you. If you’re in the market for an all-in-one corporate card solution, Ramp may be exactly what you’re looking for.

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

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Ramp doesn’t incentivize spending—we just save you time and money. Watch our demo video to learn how our modern finance platform helps customers save an average of 5% a year.