When you own a business, expenses can add up quickly. That is why many business owners opt to use a business credit card. A business credit card can help you manage the various business expenses you may encounter like the cost of operation, vendors, supplies, etc. However, being a business owner is a full-time job. Sometimes throughout the hustle and bustle, the lines between business and personal can become blurred. This could lead to a personal expense being charged to your business credit card.
Can You Use a Business Credit Card for Personal Use?
Is it illegal to use a business credit card for personal use? Not necessarily. It may not be defined as technically illegal, but it doesn’t come without risks. You will likely violate some card agreement terms and conditions. This violation could lead to some pretty hefty repercussions. That is why it is best to keep only business expenses on a business credit card.
Is it Illegal to Use Business Funds for Personal Use?
While putting personal expenses onto a business credit card may not necessarily be illegal, you want to be wary. Depending on the type of business funds that are used for personal use, individuals could be committing a clearly illegal act. An individual using business funds could be violating numerous laws and legislation depending on the situation. That is why you want to make sure to adhere to the agreement you sign when dealing with business expenses.
What Will Happen if You Use Your Business Credit Card Towards Personal Expenses Instead of a Card for Personal Use?
Sometimes consumers may feel the temptation to use their business credit card for personal expenses. Unfortunately, you will likely be violating the terms and conditions of the card agreement that you signed when applying for the business credit card. So what could happen if you spend on personal expenses with your business credit card instead of a credit card for personal use?
You Could Have Your Account Closed
Your business credit card will have an agreement of terms and conditions that you must sign. Within those terms and conditions, they may explicitly note that you cannot use your business credit card towards any personal credit purchase. Your business credit card is not a card for personal use. Your account may get flagged once personal credit patterns begin forming on your business credit card. This can be grounds to close the account entirely.
You Could Face Personal Liability
If your business deals with legal trouble, then you may be in for an unpleasant surprise. If you use your business credit card as a card for personal use then you may be stuck dealing with the expenses. Your personal credit should be different from your business credit.
There Will be Limited Consumer Protections on Your Purchases
A personal credit card is designed to be a card for personal use. This means that there are protections in place for individuals. When you use a business credit card, you may not have those same protections. That is because these cards are not designed to have the same protections that a personal credit card would have. The Credit Card Accountability Act (CARD Act) only has protections specifically for personal credit cards. These protections include:
- Interest Rate Protection: Lenders are prevented from raising interest rates with no notice.
- Regulation of Interest Rates: There are rules in place that prohibit interest rate increases on an existing balance. They also prohibit charges of interest for debts paid on time.
There are many more protections listed within the CARD Act but these are some of the more common consumer protections you will see. While the government has made an effort to extend these protections to business credit cards, there has been no progress. This means that any personal expenses put onto a business credit card will not be protected in the same way as those on a personal credit card.
It is also important to keep in mind that there are other aspects you need to be aware of. Another concern that you should keep in consideration is the dispute process. If you need to dispute a transaction on your business credit card for personal expenses, you may be in for a headache.
Debt collection also may be affected if you use your business credit card for personal expenses. You could face having less protection when it comes to how debt collectors handle collection.
You Could End Up Paying More in the End
While business credit cards may be easier to qualify for, it isn’t without reason. These business credit cards typically have higher interest rates and higher associated fees. However, even though these cards have higher values, it is typically made up by the fact that these expenses are tax-deductible. Unfortunately, personal credit expenses are not. This means you will not be able to receive a tax return on any personal purchases made on your business card. You could also take away available funds from your business when you use your card for personal use.
You Could Make it More Difficult for Yourself to Keep Track of Business Expenses
The point of a business credit card is to be used on business expenses. That is why they must be tracked, especially when it comes time for tax season. You also want to be able to get a clear idea of the costs compared to the revenue that you receive. This can provide you an idea of how profitable your business would be.
When you start using your business credit card as a personal credit card, that is when issues can arise. You end up making it harder to distinguish between business and personal expenses. This results in a lack of clarity in your business as a whole. That is why you need to be sure that you have accurate recordkeeping. When you have proper records of your business, you make it easier to obtain business funds as well. Business funds include a grant, another line of business credit, or even a loan.
Taxes Just Got a Whole Lot More Complicated
A majority of business expenses are tax-deductible. As stated earlier, personal expenses are not. That means when it comes down to the time to file your taxes, you will need to do some heavy lifting. While credit card companies may not catch your personal expenses on a business card, the IRS might. The IRS can audit your expenses. If the IRS audits your taxes and finds personal credit card charges written off, you may face back taxes and fines.
What Will Happen if You Accidentally Use Your Business Credit Card for Personal Expenses?
Humans make mistakes. Luckily, if you make a mistake, there are ways to fix it. The first thing you need to do is keep track of the personal expense that you accidentally put onto the card. The next thing you want to do is pay off the personal expense charge as quickly as possible. This frees up funds that you can use on your actual business.
If there are other people within your company that need to know about this mistake, you need to be sure to tell them. Alerting any other parties in the business of a personal expense on a business credit card shows them that you made an honest mistake.
Frequently Asked Questions
Is it illegal to use a business credit card for personal use?
While it may not be illegal to use your business credit card for personal use, it is highly ill-advised. Tax difficulties, broken term agreements, higher costs, etc., can arise even if it is explicitly illegal.
Can my business take care of my personal expenses?
Only you can decide if your business can afford to pay for personal expenses. Each situation is unique. If you find that you can use your business to handle your personal expenses then great. You just need to make sure that you don’t try to deduct personal expenses when it comes time for taxes. Always be sure to consult with a professional before making a decision.
What’s the difference between a personal credit card and a business credit card?
A personal credit card is designed to be used by individuals. A business credit card is designed for people to use with business income. Both cards can offer reward programs. If you want to use a credit card for personal expenses then you should get a personal credit card. It may be tempting to use your business one, but it is not worth the risk.
Can Your Business Credit Card Activity Affect Your Personal Credit Score?
Your personal credit score will likely receive a hard inquiry when you apply for a business credit card. This is common practice for a majority of lenders. When you submit a hard inquiry on your credit report, it can stay on your credit for up to 2 years. The negative impact a hard inquiry has on your credit decreases over time and should stop impacting your score after roughly a year.
Oftentimes creditors also believe that you are personally responsible for debts that your business can incur. Policies for each card issuer vary so it is important to understand before submitting an application.
Are There Any Benefits to Having a Business Credit Card?
Just like other credit card promotions, you may see a lucrative sign-up deal. Maybe you have extra rewards that you can take advantage of or another type of sign-up bonus. You could also contribute towards your credit health depending on the issuer. However, the biggest benefit of all is organization. When running a business, there are many different aspects that you need to keep track of. The better the organization, the easier your business will be to manage! That is why separating your business expenses onto a business credit card could be beneficial. Applying for a business credit card may sound daunting, but it can be a good idea.
Can I Use My Personal Credit Card Towards Business Expenses?
You can use your personal credit card for business expenses, but it is not recommended. There are numerous reasons why you should specifically get a business card for your company expenses. When you use a personal credit card for these costs it is harder to keep track of your money, reduces legal protections for businesses like LLCs and corporations, and doesn’t help your business credit health.
Understanding your options when it comes to credit can be challenging. Especially when you become a business owner. That is why education is important. In the end, you should try to keep your business and personal expenses separate. When you keep these separate, you make it easier to handle the financial aspects of your business from taxes, to payroll, and more. It may not be illegal to use your business credit card for personal expenses, but it can cause some trouble.
You should reach out to your card issuer if you have any questions about the capabilities of your credit card. If you want to have more credit available on your cards, you may be able to increase your limit. If you are thinking about getting a business credit card for the first time, you may not need to negatively affect your credit to the full extent. There are pre-approval options available that take a soft inquiry on your credit in order to see what you may be eligible to qualify for. This provides you a roadmap when it comes to actually submitting a hard inquiry application. When you know what type of card to apply for, you don’t need to worry as much about getting denied due to an unsightly credit score. Take your time, speak to your issuer, and always follow the terms and conditions of your credit agreement!
- Hall, Aaron. “Shareholder Rights: Unlawful Personal Use of Company Funds.” Attorney Aaron Hall, 22 Feb. 2019, aaronhall.com/shareholder-rights/.
- “Credit Card Accountability Responsibility and Disclosure (CARD) Act Definition.” Bankrate, 2021, www.bankrate.com/glossary/c/credit-card-accountability-responsibility-and-disclosure-card-act/.