Keeping Personal Finances Out of Your Business

business credit card“Don’t worry, I’ll just charge it to my card!” Most have said it, but the stakes of the game change when we’re talking about business expenses.

The personal credit card is an undeniably helpful tool that allows us to be more flexible with our cash. It’s convenient, comes in handy for emergency expenses, and can help to build personal credit. Many credit card issuers even offer incentives, reward programs, and purchase protection.

Over 80 percent of U.S. households have at least one personal credit card and personal credit cards are a preferred method of payment for millions of Americans. With that said, there are issues with overusing personal credit cards.

For business owners, using credit cards as a means of financing business operations is an all-too-common practice. The problem is that credit cards are not designed for this purpose. Personal credit cards are for personal use, not business use, and it’s crucial to keep your personal and business expenses separate. This is the reason why business credit cards exist.

While it may be tempting to use a personal credit card for business purchases, here are three compelling reasons why you should probably resist the urge.

Reason #1 – Liability

Using personal credit cards for your business could end up costing you more than you think. Combining personal and business expenses on a personal credit card can help jeopardize the protection of the corporate veil. If this happens, you could end up being personally liable for damages or debts attributed to the business even if you formed a corporation or limited liability company.

In fact, according to Cornell Law Review, corporate veil piercing is one of the most litigated issues in corporate law. In order to help limit your liability, it’s essential to use a business credit card exclusively for your business. This not only helps make budgeting, expense reporting, and tax filing easier, but it also keeps your personal and business expenses completely separate.

Reason #2 – Credit

Using personal credit cards to finance your business could directly impact on your personal credit score. Making business purchases using personal credit cards can significantly increase your personal credit utilization. As you may know, credit utilization is a key factor in determining one’s personal FICO® Scores.

Reason#3 – Creditworthiness

Establishing the creditworthiness of your business is very important. It can help you maximize your business’ ability to raise funding and reduce your reliance on personal credit. By using your business credit card for business expenses and making on-time, in-full payments, you can negotiate for better terms and conditions with your credit card company down the line.

The bottom line is that business owners should seriously consider obtaining a business credit card to use exclusively for company-related purchases. Besides providing needed cash flow, business credit cards can also help keep your personal and business finances separate and keep your business purchases from influencing your personal credit. In the right hands, a business credit card can be a useful tool.

Photo Credit: Pure Metal Cards, Flickr

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