This article is part of our guide to business credit cards.
Yes. Technically speaking, you can use a personal credit card for business expenses.
However, that doesn’t mean that you should.
Depending on the governance and policies of your business, there may be a number of reasons why you shouldn’t. In addition, it’s an inefficient business accounting practice to run your expenses through a personal card, making it harder to track business expenses when tax season rolls around.
For your own business, it may be convenient to use your personal card for business purposes. 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 when your business does.
That said, in many companies, employees are able to use their personal cards for business expenses, then file for reimbursement afterward. As long as the use is authorized and there’s a simple expense reimbursement process established, this shouldn’t be a problem.
But often, problems arise, and when they do, it’s a hassle for both parties involved. Having to front corporate expenses with personal finances and then file expense report paperwork afterward can cause frustration for employees and waste your accounting team’s valuable time and resources. Put simply, relying on your employees to use a personal credit card for business expenses isn’t fair to your employees. It’s a tedious and suboptimal way to handle what should be a straightforward process. It’s much better to empower employees by giving them a company credit card with built-in spend limits and automatic receipt matching.
Using a personal card for business can create serious problems for both the business and the owner of the personal credit card. Despite the fact that you shouldn’t use a personal credit card for business expenses, there are still plenty of people who do.
In fact, the practice is troublingly common. According to one Forbes study, over 50% of all small business owners regularly use one or more personal lines of credit for business expenses.
Everyone has been in situations where the best choice is unclear. Between time sensitivity, financial pressures, and a host of other concerns, you’re not always in a position to make perfectly ideal financial decisions.
Some factors that might persuade you to use a personal card for business:
You may have corporate credit options, but not have them readily available at the time and place you need to make a business purchase. For example, you forget to bring a corporate card to an event or client dinner.
You may have rewards or other benefits that incentivize the use of your personal credit card. For example, there may be specialized cash back or partnered promotions or travel rewards that seem better than their counterparts on your corporate credit options.
You may not have a corporate credit card or line of credit, either because you have been unable to apply and qualify for one, or simply didn’t know how to.
The biggest risks associated with using your personal credit card for business purposes have to do with insulation from liability. It’s important to keep business finances separate from personal ones, and the biggest consequences happen on the personal side. But there are also issues that can occur on the business side, too:
Negative impacts on personal finances
When you’re the owner of a business, using a personal card for business opens you 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 that protection out the window when you mix your finances together. That means a) Your personal assets could be seized in a lawsuit targeting your business. b) Family accounts and co-owned property (your house) could also be liable.
In addition to making yourself liable, mixing up your business and personal finances can also damage the business itself. Using a personal credit card for business expenses complicates finances, creating room for potential bookkeeping errors and inefficiencies, especially as you scale up your business.
Creates a potentially uncomfortable dynamic with employees
When employees use personal cards and are later reimbursed, the employees’ credit lines function like de facto business loans. This can create a strange dynamic where the employees act as a bank, loaning personal money to the company. While that’s not necessarily a negative impact on either the company or employee, it’s certainly not optimal.
If you want to avoid jeopardizing your financial well-being, you need a corporate card with no personal liability.
But what does that mean?
Personal liability is a feature offered by some business credit card issuers; it makes the key business owners personally responsible for debts incurred in the name of the business. 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.
These days, there are better, more founder-friendly small business credit cards and corporate cards on the market.
There are various types of business credit to choose from, and each has its own pros and cons. However, all share a handful of advantages that make them a better alternative to using personal credit cards:
From small daily purchases to large-scale loans, your business needs credit to function. One of the primary ways to ensure creditworthiness so you can qualify for a loan is to keep your business credit score strong. And one of the best and only ways to build your business’s credit score (especially as a new business) is using a dedicated business credit card.
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, a majority of corporate cards are also bound by them. Plus, legislation to increase corporate cards’ protections is in the works.
Many business credit card companies have fees associated with registration and yearly renewal. But some charge cards have no annual fees and operate at low or no cost to you.
Some corporate cards help you find value by incentivizing business spending with cash back rewards programs up to a certain limit. These programs allow you to redeem cash when you make certain eligible purchases. Some providers offer separate rewards for customers using a business travel credit card.
Financial institutions typically partner with a number of goods and services retailers, offering special rates, free credits, and other perks to cardholders.
Finally, the best of 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 and finds areas to cut costs, reduce maverick spend, and boost your bottom line.
At Ramp, our benefits for business owners and accounting teams make our corporate card better than the best virtual credit card on the market.
Instead of asking, “can I use a personal credit card for business?” it’s time to start looking for the perfect business card to meet your company’s individual needs and means.
Submitting an application for Ramp’s corporate card platform takes as little as five minutes, and you’ll find out if you’re approved in no time! Get started with Ramp today. The personal and business benefits are immeasurable.