When you first start a new business, you might be so focused on building and growing that business that you never bother to worry about how you are paying the expenses of that new company. This can be a huge mistake!
Many new business owners jump in headfirst without creating a plan for how that business will operate financially. Many of them make the mistake of using their personal credit cards for business expenses.
Here are five reasons why using personal credit cards for business expenses could be a big problem for your company.
Limited Upside
The most obvious reason you don’t want to use personal credit cards for business expenses is that you won’t be building up any credit in the name of your business entity.
Should you grow the business to the point where it needs to take on some significant financing to fund more growth, you will want to be able to demonstrate a long track record of creditworthiness, and you won’t be able to do that if you don’t start somewhere.
Debt Counts Against Personal Credit
The flip side of the same argument is that using your personal credit cards for business expenses will make those business account balances show up on your personal credit report.
This may not be a big deal if you have excellent credit, but even good credit scores can receive extra scrutiny from mortgage lenders if large balances are sitting on those revolving accounts.
Because many business credit cards do not report to the credit bureaus, you can usually get away with not having those business accounts show up on your credit report if you apply for a mortgage or vehicle loan.
Harder to Track Business Expenses
Another excellent reason to avoid using your personal credit cards for business expenses is that mingling your finances makes it extremely difficult to track which expenses were business-related and which were personal.
Even the best record keepers have a hard time keeping things straight when they go to file their taxes at the end of the year, so anything you can do to keep things simple will be a tremendous help.
Potential Liability Issues
Mingling your business and personal expenses could also create problems if you have your business set up as an LLC or S-Corp and are counting on that entity to protect you from potential liability issues.
To maintain the business as a completely separate entity, you need to be sure that all finances are also completely separate.
Business Cards Offer Perks
Most of the reasons to avoid using personal credit cards for business expenses concern protecting yourself against a wide range of potential issues, but there is also one positive aspect of getting a new business credit card: signup bonuses!
Almost every major business credit card offers an excellent signup bonus ranging from cash to travel points. This alone can be an excellent reason to sign up for a separate business card, provided you have a track record of responsibly paying off the card each month.
Using personal credit cards for business expenses is never a good idea, and setting up a better alternative can usually be done with just a tiny amount of planning. Make an effort to do that planning today so that you aren’t caught off guard by the downside of putting it off later.
