When starting or growing a small business, the simplest way to access credit is via a personal credit card. It saves filling in complex forms, detailing the revenue of your business and having to sign excess paperwork. That’s why so many new business owners ask “Can you pay business expenses with a personal credit card?”

We get it, it’s an easy option! You can also take advantage of some of the many 0% interest introductory offers that exist in the personal credit space. The bad news is that these benefits are short-term and fade quickly. A business credit card can give you longer repayment terms and larger lines of credit in the long run, empowering you and your employees to act on behalf of the business and utilise a more appropriate form of credit to grow your business. The question is; which avenue is the right one for you?

Let’s explore some of the specifics in more detail to find out whether you should be using personal credit to grow your business or if it is time to make the switch to a business credit card.

Reasons why you shouldn’t use a personal credit card for business expenses

1. Loss of control

Many small business owners pay little attention to whether they are using a business or personal credit. However, using personal credit for business transactions means finances can get cloudy and any spending benefits that you could gain quickly get lost in the fray. As a business owner, you want to retain the ability to manage and control spending within the business, making it easy to stay on top of budgets, track outgoing payments across all aspects of the business, and control your finances.

Crossing over your personal and business expenses will inevitably muddle the pathway to accurate tax reporting (a problem either you or your accountant will have to wade through at tax time). You could make a mistake entering data or miss out on tax deductions due to unclaimed spending. Likewise, any rewards accrued on spending will be awarded personally or to your employees rather than the business itself.

Not least of all, your proof of expenditure and repayment adds to the business's credit history and credit score. By keeping your business expenses on your personal credit card, you will potentially harm your ability to access loans in the future. The ability to access funding can sometimes mean life or death for a small business, so why lose a strong credit history simply because personal credit is sometimes the easy answer?

It also works the other way around if you’ve been wondering “Can you use a business credit card for personal use?’, making personal expenses on a business credit card leads to a loss of control. 

2. Bad for cash flow

Another downside to using a personal credit card for your business is that it reduces the amount of credit you can acquire, which weakens cash flow as a whole. A business credit card is generally offered with a 5-10x higher credit limit than is available on a personal account. A lot of the time, credit cards will be used for miscellaneous expenses, office spending, travel and entertainment - Making day to day payments and expenses an easy thing to manage.

Low amounts of accessible credit can also impact your credit utilisation ratio and, in turn, your credit score. While solving an immediate concern today, relying on personal credit can have drastic consequences in the future. This is also possible in the form of your own personal flexibility. If by using your personal card for business, you hit your credit limit, your individual financial flexibility and even your personal credit score can be damaged. Save yourself the worry and look into an option for business credit sooner rather than later.

3. Paying interest

Probably the most intuitive concern to have on this topic is the idea of interest fees which are determined by the interest rate. Once you transfer the money from your personal account to your business, you’ll pay interest on those funds until the business pays them back. The interest fees that you acquire personally are not the responsibility of the business. These figures can add up, especially if you carry a balance. 

In worst-case scenarios, business owners become personally liable for these interest fees and not the business. If this interest and debt are acquired by the business instead, then you have a greater amount of financial and legal protection at your disposal. To avoid paying two lots of interest to two business credit card issuers, consider applying for and using a business credit card for all your business-related expenses. If you’re wondering, “Can I use a business credit card for personal expenses?”, this is one reason a business credit card for personal use is not a good idea.

4. Lack of security

One of the biggest concerns to be aware of when using personal credit is security. If someone is able to access your private information and make charges on your card, recouping those losses takes time. Often, it can take months before getting the money back becomes a possibility. Additionally, in worst-case scenarios, improper use of a card can lead to a lack of legal protection. In both these scenarios, a business credit card would offer greater protection — where the business itself is responsible and your personal liabilities are safeguarded.

Tracking employee spending can also be a nightmare without the use of business credit cards. Assigning a unique card number to each employee will make tracking spending simple. Some of the best business credit card options will let you set individual spending limits, so the total credit limit is not accessible to all employees. All of this adds up to much more security and control over your business. How can that be a bad thing?

5. Affordability

One very likely concern with relying on personal credit, is the effect it could have on your personal finances. If you are only using a personal credit card, you are dramatically limiting your personal affordability. Not only will you have to negotiate both business and personal expenses, but if there is damage done to your credit score, then there are flow-on effects as well. It affects how much you can borrow, whether for a mortgage or a personal loan. You often spend a lot of time considering the viability and success of your business, which means you lose sight of your personal financial goals. To keep this concern from tripping you up, look for a business credit solution today.

If you’re still wondering what’s the best personal credit card for business use, consider the points above.

Reasons why you should use a personal credit card for business expenses

1. Personal credit card is easier to use

The most obvious reason is immediacy — most people already have a personal credit card. So, if the need is urgent, then personal credit is more readily available. Likewise, no business is checking to see if the payment is made from a personal or business card. The best kind of payment to suppliers or contractors is a completed payment, so waiting around for business credit won’t help buy supplies or build relationships with suppliers.

What you need to weigh against this immediate benefit is if the drawbacks listed above make the situation too costly in the long run. If you have a pressing need today, personal credit could be the way to go while you pursue your options in the business credit space.

2. You can charge both personal and business expenses with one card

Another potential upside to consider is that using only one source of credit means that all expenses are centralised. This may benefit a sole trader business that doesn’t have high spending or any employees. Additionally, if there are any beneficial rewards schemes, all of your spending will add to those rewards. There are often introductory offers given to personal credit users for 0% interest on spending for a certain period of time, which you could also take advantage of.

When tax time rolls around you may have complications separating personal and business expenses but if you keep detailed records for all business spending, this process can be simple. Where relying on personal credit can be an issue is if you want to expand. Employees using personal credit will bring inevitable complications when it comes to reporting, plus any rewards on spending will go to them rather than the business. While this practice is common, it renders difficulties in terms of limits and potential disputes. Consider the size and future of your business when deciding on which type of credit is right for you.

3. Personal credit cards offer greater flexibility than business credit cards

As previously mentioned, personal credit cards are awash with introductory offers and deals. If you are scrupulous, you can take advantage of these and move your credit around when new offers appear. If there are changes to your business, you don’t need to cancel your personal credit card. Suppose you decide to pivot or the business closes in a shorter period of time than expected. In that case, you won’t need to worry about cancelling your business credit card or paying any fees for breaking the contract.

All of this flexibility should be weighed up against the greater security and potential for growth that goes with using business credit. If you are just starting out or unsure about the future, maybe stick with a personal credit card for business expenses.

4. Fees

Business credit cards have higher fees on average than personal credit cards. That’s not to say they’re all the same, there’s a variety of options, but you should know that more features, higher credit limits and no personal liability, it’s likely to come at a higher cost.

That was a lot to take in! But, when it comes down to it, while personal credit offers immediacy and flexibility, a business credit card (which can be called a “corporate credit card” for a corporation) is the safest and best way for a business to increase its cash flow and grow its business. Whether it is maintaining control over all your finances, minimising the amount of interest to pay or increasing your financial security, accessing a business credit card will undoubtedly lead to growth in your business.

A solution if are using a credit card for business expenses

Archa is a business credit solution that has taken all of this into account. We offer a quick and easy sign-up process, which can fast track your way to access all the benefits that business credit has to offer. So if you find yourself asking: can I use personal credit for business use? The answer is ‘yes’, but a better way to do business is to contact us and sign up to Archa today!