You probably already have a credit card or two in your wallet, but as a small business owner or solopreneur, you may find yourself wondering if you should use your personal credit card for business purchases or open up a new business credit card.
Business credit cards are offered by almost all major credit card companies in addition to their personal credit card products. But are there any reasons you should be using one instead of a personal one for your business?
Before you decide to open up a business credit card, consider these important pros and cons of using a one.
Pros of Using a Business Credit Card
Instant Cash Back
Many business credit cards offer cash back and other rewards programs that are better than the ones offered by personal credit cards. If you use a business credit frequently, this can be beneficial to help you save money on travel, or by earning cash back on your business purchases. But before you sign up for a business card, be sure to read the fine print on what spending limits there might be for earning rewards, and what types of purchases earn the most rewards. Try to pick a card that makes the most sense for what your business needs are.
Frequent Flier Miles
Business credit cards with travel rewards can pay off if you travel a lot for work. Travel, and especially air costs, are expensive and anyway you can lower those costs is a good thing. Getting some free tickets or cheaper airfare is always a positive. You might also be able to use travel rewards as a bonus for your employees for their personal use.
Easily Track Expenses
If you only use your business card for business costs, which is what you should do with a business card, you’ll know what you owe and what you are spending money on. Running everything through one account can help you keep track of expenses and tell you where you might need to cut back.
Build up Credit
Business credit cards almost always require a personal guarantee. This means activity will likely show up on your personal credit report. This can be a good thing if you are using it wisely. Alternatively, it can also negatively impact your personal credit score if you are late making payments on your business credit card or max out your credit limit. You can avoid this by looking for business credit cards that don’t report to consumer credit bureaus.
Cons
Another Way to Gain Debt
If you took out a business loan to start or grow your business you are busy paying off this debt. Add in personal debt, it can be an overwhelming amount. Overuse of your business credit card can add to this debt and make it harder for you to dig out. As mentioned, this debt may show up on your personal credit report. It could negatively impacting your debt-to-income ratio, which is a factor considered in your credit score and by lenders making credit decisions.
Potential for Abuse
Having a company credit card can make it tempting for it to be misused by your employees. People make mistakes, but the temptation is out there. You can avoid this risk by not having credit cards for your employees. But, even as a business owner, you might be tempted to blur the lines between business expenses and personal expenses being charged to your credit card.
Mixing of Personal and Business Expenses
Again, if you are the only employee of your business it can be tempting to use your business card for personal expenses, even though it should only be used for business. Business cards tend to have higher limits, which makes it all the more tempting.
Less Protections
Consumer credit cards are protected against immediate interest rate hikes, payment allowances, and payment windows by law. But these rules did not apply to business credit cards. Interest rates could increase overnight and you won’t have advanced notice. This is something else to consider before applying for or using a a credit card. It’s especially important if you won’t be able to pay off the balance in full each month.
When deciding on whether or not you should have a business credit card, keep in mind what your business needs truly are. If you need to grow your business credit a it can be a good move. But, if you don’t spend enough to meet the larger reward requirements of a business card then a personal card might be sufficient for now. Either way, read the fine print of any personal or business credit card you are considering and know what your objectives are. These credit cards can be beneficial if used correctly.
