Dangers of putting business expenses on a personal card

Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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Question Dear Your Business Credit,
If I open a personal credit card to pay for a new business, can the bill then be paid from the business account? -- Natasha

Answer Dear Natasha,
I ran your question past Robert Brennan, an attorney at SoCalCreditDamage.com, in La Crescenta, California.

He said that this is really an accounting issue. Let's say you use your "business" card only for your startup and save receipts to show you're using it solely for that purpose. In that case, you can count the card as being for business use on your taxes, he noted in an email. However, if you mix in too many personal charges on your card, you will likely run into problems, he said. That is an easy temptation for a small-business owner, especially if you carry the card in your wallet.

There are other pros and cons to using a personal card for business. Personal cards come with some consumer protections that business cards do not. But they will not help you build up a credit history for the business -- something that can help you win lower interest rates if you ever need a bank loan. For more discussion on this, see "Business card benefits outweigh limitations for most businesses." Since it sounds like you have a business bank account or plan to open one, your bank will probably start sending you offers to open a business credit card, assuming you have good credit.

Your note mentioned you are considering opening a credit card to pay for a new business. I hope the card is not going to be your sole source of financing and that you keep your borrowing to a minimum.

It's fun to read stories of entrepreneurs who started out with almost no capital and achieved mind-boggling success. But what seldom gets covered are all of the entrepreneurs who use credit card financing to fund a business that doesn't work out or may have succeeded if only they had more money to keep going. Sometimes I get letters from these folks in the aftermath, and paying down their debts can be a nightmare.

I'm not saying this to discourage you. Wells Fargo found in a January survey of small businesses that optimism is at a seven-year high. My advice is to save up what you will need to start and run the business for at least the first three months, and then open the business. Seeing if you can sock away the money will help you figure out if you have the financial discipline to run a small business. And it will get you off to a better start than many businesses have. Good luck!

See related: Business or personal credit: Which can be built faster?, Business loans from banks: 5 ways to boost your approval odds, Can I borrow to pay my business tax bill?

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Updated: 01-23-2019