Can you use personal credit cards for business expenses?

As a small business or a startup, what’s personal and business are often blurred lines. Are personal credit cards and corporate credit cards really interchangeable? Consider some of the top challenges faced by SMBs: Cashflows as well as credit risk. You see, the means by which the business expenses are incurred matters! Here, we want to make a case for why you should really start looking into corporate credit cards for your business.

Personal Credit Card and Corporate Card, explained

Personal credit cards (aka consumer credit cards) are issued by a financial institution which tends to be a bank, and it allows the cardholder to “borrow” money from the institution – to be able to spend money in advance. To enjoy the privilege of advanced spending, cardholders will pay the money back to the credit card company with interest rates, according to its terms agreed upon signing up for a credit card. As for corporate credit cards (aka business credit cards), they are issued to employees that let them charge business expenses authorized by the business without having to use their own card or cash. Many times, they are issued to more established companies earning millions and billions in annual revenue, given their robust financial health… But hold up before you want to stop reading here! Be patient as we make the case for small business owners to use corporate cards 😉
Personal Card Corporate Card
Similarities
  • Can be used to pay both business and personal purchases/ expenses.
  • Can offer the same rewards programs, cash back rewards, sign-up bonuses and other perks.
  • Takes into account personal credit history when approving.
  • Individuals are held liable for debt, not the business.
Differences
  • Lower credit/spending limits.
  • More likely to offer bonus rewards at grocery stores or drugstores.
  • Able to offer 0% APR for a longer period (12 months/longer).
  • Consumer protections (laws) apply.
  • Higher credit/spending limits.
  • More likely to offer rewards on phone bills, online advertising or office supplies.
  • 0% APR also applies for only 9-12 months.
  • Protections may be extended to business cards on a voluntary basis.

Can you use personal credit cards for business expenses?

It’s no crime to use your personal credit card for business expenses but is it the most ideal? Of course credit card spending comes with a big bag of goodies. As long as you’re able to keep track of the business expenses incurred out of your pockets to claim reimbursement later on, you stand to earn yourself rewards and other benefits like specialized cash back or partnered promotions. Other reasons for using your personal card for business spending include convenience as we tend to have our personal cards with us and they would be readily available at time and place when you need to make a business purchase like a meal with a client; as well as necessity when you don’t qualify for a corporate card and a personal card is really what you have.

Why shouldn’t you use personal credit cards for business?

Heard of the 30% credit utilization rule? To push up your personal credit score as much as possible, it’s recommended that you should use as little of your available credit as possible. That said, it wouldn’t help you to have both your personal and business spends on your personal credit card. You want to keep your credit utilization ratio low by differentiating the kinds of spends. Another reason is the difficulty of tracking as business expenses get mixed with personal expenses. You want to make tax time as easy for yourself and your business. Imagine detangling all of your expenses in the statement sent to you at the end of the month… personal, business, personal, personal, business? Don’t run the financial and legal risks of double-counting and/or missing out on certain transactions! You also don’t want to end up underreporting your business expenses as you take these expenses under your personal card wing leading to you overspending.

Reasons to use corporate cards instead of personal credit cards for business expenses

First of all, corporate cards are customizable. Every employee spends differently on the business and as the business owner, you’re on top of controlling these expenses. With corporate cards, you’re able to pre-set a credit limit for each card user according to your business needs. Corporate cards also allow you to set custom authorization rules like which merchants employees are allowed to purchase from – one of the ways to protect your small business from fraud. Using corporate cards for business expenses Secondly, having the ability to set spend limits on your corporate cards puts a halt to overspending behavior. Of course, this should be complemented with clear corporate policy defining spend limits for your employees. This pushes cardholders to be more cognizant of their own spending habits. Thirdly, it is easier for you to track spending. It’d greatly ease your bookkeeping and reduce the time used to balance your checkbooks when you get into the habit of using your corporate card to pay for all business expenses. Funds for corporate cards are pre-loaded from the company bank account, which means out-of-pocket expenses are a thing of the past! Paying your suppliers on-time and in full also prevents you from accumulating interest on your purchases. Spenmo Dashboard

How to choose the best corporate cards for business

1. Choosing the type of business credit card: Charge cards or credit cards?

Charge Card Credit Card
Ability to preset credit limit? Yes No
Ability to delay bill payment to the next month? Cannot delay and need to make full payment every month. Can delay or make a minimum payment each month, but interest will be accumulated to the next billing cycle.
Late payment fees? Yes Yes
Credit card issuers and merchants variety? Not a wide selection of card issuers, and not as widely accepted by merchants. Wide selection of card issuers, and accepted by most merchants.
Credit score to qualify for card? Typically requires very good credit. Some cards are available to those with lower credit scores.
So, which is the best? Earlier on we mentioned cash flow being a challenge for small businesses. On the first glance, it appears that charge cards would be a better choice for small businesses to remain interest- and credit-free by requiring you to pay off your debts before the next billing cycle. However, as a small business owner, you’d want to be as flexible as possible. With the rise of remote working, it’s also not feasible to restrict your employees to a limited number of merchants and the option to have employee cards made with customized spending controls is really limited to only credit cards. You want to be on top to watch those expenses and control costs.

2. Consider your business’s expenditures.

Run through your business’ spending habits. You can get started by looking at your books from the last one year and if you haven’t identified the expense categories, we recommend you to do it as early as possible in your business so that you can find out where you are spending the most. Is it travel? Marketing? Dining? Once they have been identified, you can start to look for a business card that provides you with the most benefits for those purchases. Else, if you find that your business purchases are too diversified, you can opt for a simple flat-rate cash back card that offers cash back benefits on any kind of purchase.

3. Consider added bookkeeping benefits.

The ultimate beauty of corporate cards is the ability to download your credit report and transaction history on a suite of management tools and the ability to export these data to accounting software, making record keeping easy-breezy for businesses. For example: Signing up with Spenmo which also does small business credit cards, some of these benefits you stand to gain include:
  • Everyone gets a card, whether it’s virtual or physical: Set up account within 30 mins and get cards instantly,
  • Ability for yourself and your employees to manage your accounts on mobile,
  • Real-time access to transactions on your dashboard, and
  • Preset, freeze & unfreeze spending with just one click.

Stay up to date with Spenmo

Sign up to get the latest news, updates, and special offers delivered directly to your mailbox.

Manage your business payments better, today