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This question is probably one of the most frequently asked and discussed amount Canadian business owners, in particular small business owners. Is it ok for you, as a business owner, to use your personal credit card to make business-related purchases?

Can You Use A Personal Credit Card For Your Business? 

Keeping your personal and business expenses separate by using a different credit card for each is ideal. However, you can still use your personal credit card for your business. In fact, this may be necessary when you first start your business, as it may not yet qualify for a business credit card.

If you do choose to use a personal credit card for business purposes, apply for a rewards credit card that allows you to earn rewards for every dollar spent. Consider the earning rate for specific types of purchases that are more geared towards your business operations to maximize your points. For instance, a card that allows you to earn a lot of fuel or airfare points may come in handy if you travel a lot for business.  

How To Use A Personal Credit Card For Your Business

Ideally, you should have a business credit card and a personal credit card to keep your personal and business expenses separate. This will prevent any confusion, especially when it comes to doing your taxes. 

But if you choose to use a personal credit card for business expenses, make sure to keep a detailed log of all purchases made for your business. In addition, keep all of the receipts and file them in an organized manner so that when it comes time to file your business taxes, you have everything you need to take advantage of all eligible tax deductions while complying with the CRA.

Keep in mind that using a personal credit card for your business may work during the early stages of operation, but you may want to consider opening a separate business credit account once your company starts to grow and become more established. 

Drawbacks Of Using A Personal Credit Card For Your Business

As explained above, using your personal credit card to make business-related purchases can be a bad habit to develop, here’s why. 

High-Interest Debt

Carrying any balance on your credit card month to month means you have (at least some) high-interest debt and this means you’re spending too much money on interest. Yes, small business owners are typically in debt but high-interest credit card debt should not be a part of that debt if you can help it. The great news is you can absolutely help it, by applying for a small business loan and then discontinuing the use of your personal credit card.

Tax Season Could Be A Nightmare

If you continue to use your personal credit card to make both personal and business purchases, tax season will, without a doubt be a nightmare. When you file your business’s taxes, you’ll most likely want to deduct your business-related expenses. If during the year you used your personal credit card to purchase these business-related expenses you could end up causing you’re self some serious tax issues which could end in an audit. Your personal income taxes and your business’s taxes are two separate things so getting them all mixed up because you only used one credit card is something you definitely need to reconsider.

Your Personal Credit Could Suffer

By using your personal credit card to cover business expenses you’re putting your own credit and financial future on the line. While your small business could be doing great right now (and hopefully it will continue to grow) you cannot predict the future. Starting a small business, and keeping it afloat, is a tricky and risky thing to do. If your business falls into hard times your own personal credit could suffer.

Furthermore, in the event that your business has legal issues because your personal finances are intertwined with your business’s finances, your personal assets could be at risk.

Should You Use A Business Credit Card?

Having a business credit card specifically to cover business expenses is highly recommended, no matter how small or large your company is. Here are a few reasons why:

Separate Your Personal And Business Expenses

This will make filing your personal and business taxes much easier and help you take advantage of tax deductions your business may be eligible for. 

Take Advantage Of Better Credit Cards Offers

Depending on the details of your business, you may qualify for a lower interest rate or higher credit limit on a business credit card. 

Get Cards For Employees

If you have employees who are tasked with making business purchases, it would be much easier to have them pay against your business credit account to keep all business expenses consolidated.  

Build Your Business Credit Profile

If you only use your personal credit card for business expenses and never set up a business credit card, your business will miss out on building its own business credit profile. A business credit card will allow you to build on your business’s credit score. 

Furthermore, having a business credit profile and a great business credit score will open up even more financial possibilities for you and your business in the future. Potential business lenders will want to see that you have a business plan and a profitable company, but they’ll also want to see that you can handle credit responsibly and appropriately.

Can You Qualify For A Business Credit Card?

Some creditors may require that you show evidence that your business exists, such as a business license, financial statements, tax receipts, or partnership agreement. If you’re a sole proprietor and your business is under your name, you may also be eligible for some business credit cards without having to be a registered business. 

Alternative To A Personal Credit Card

A small business loan is another alternative to using a personal credit card. Like a credit card, you can use a small business loan to help cover your business expenses.  

Your small business has specific financial needs and more often than not your financial investments won’t see a return for quite some time, this is where a small business loan becomes exponentially more valuable than a credit card. Credit cards are great for small personal purchases but as a long-term investment in your business, you need to go with a small business loan.

Business Credit Card FAQs

What’s the difference between a personal credit card and a business credit card?

Personal and business credit cards generally work in the same way: you’ll be given a credit limit within which to spend, and balances carried over will be charged a specific interest rate. These charges are relatively similar between the two types of cards, though you may be offered more competitive rates and terms for a business card. 

You’ll also be subject to all the same terms and conditions that come with credit cards, whether you apply for a business or personal credit card. 

The difference lies in what you use your credit card for. In this case, you’ll want to reserve your business credit card for business expenses only. 

Am I personally responsible for my credit card debt or my company?  

This depends on the type of business you’re operating. If your business is incorporated, for instance, you’ll benefit from “limited liability,” which means your business debts are legally separated from your personal debts. 

However, many business credit cards don’t work this way. With these cards, the liability is shared between the company and the person applying for the credit card. You’ll need to look at the credit card agreement to see if it notes “joint liability,” which means the charges on the business card are the responsibility of the company and the owner.

Are there any disadvantages of a business credit card?

One drawback to a business credit card is that it may impact your personal credit score. If you have a habit of making late credit card payments on your personal and business credit card, both the business credit rating and your personal credit score will suffer. 

Another disadvantage of a business credit card is the temptation of spending more than necessary as a result of having access to a really high credit limit.

Bottom Line

While a personal credit card might seem like the easiest and quickest option for small business owners to afford the daily costs of running a business, it’s not recommended. A business credit card will allow you to not only help you build your business credit score but it’ll separate your business costs, making it easier to file your business taxes. Moreover, there are many convenient, quick and reasonable small business loans readily available to all small business owners in Canada. You’ll be surprised at how many alternative small business lenders are willing and ready to help you accomplish your financial goals.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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