Using Business Credit Cards for Personal Spending

Using business credit cards for personal spending is generally frowned upon from an accounting perspective and from a legal perspective. However, there are very specific reasons for the disapproval.

From an accounting perspective, mixing business and personal expenses makes it difficult to sort them out when doing your taxes. It is a best practice to segregate business and personal expenses to avoid confusion with bookkeeping and to simplify tax preparation.

From a legal perspective, there is legal risk when mixing your personal and business expenses. Having a corporation offers some legal protections from liability. However, the corporate veil can be pierced if it is proven that the business is not a separate entity from you, the owner. This is easily done by showing that you use the business credit card for both personal and business expenses.

With these accounting and legal reasons in mind, it is my opinion that you may be able put personal spend on a business card if:

• The business credit card is used exclusively for personal spending to avoid commingling. You would have a separate business credit card dedicated to business expenses. Preferably, each business credit card represents a different business so that it can't be said that you are using your business reputation for personal gain. This is a stretch. But, if your business name is Gamsa Gaming, then perhaps your business card used for personal expenses could be for Damsa Hospitality, for example.
• Your business is not a corporation so that there already is no distinction between you and the business. A sole proprietorship offers you no liability protections. You are the business. The business is you. You still want to maintain separate accounts for bookkeeping reasons.

Why would you want this?

The advantage of putting personal spending on a business credit card is primarily that the percent utilization of your business credit does not show on your personal credit. In this way, you are not penalized for carrying high balances. However, this is a broad generalization. Some credit cards, such as the Capital One Spark card do report your balances to your personal credit profile. You want to check that the issuing company does not report business credit to your personal credit report.

Another advantage is that business credit cards often have higher credit limits than personal credit cards. Businesses often require more capital and have greater income than individuals. Therefore, banks often provide higher credit limits to business credit cards in order to provide them with more working capital to carry out business operations.

Ultimately, you want to hide your personal debt from credit reporting agencies so that you can continue to have good credit. Business credit often relies on personal credit. However, personal credit is blind to business credit, unless you default. So, there is a business reason for keeping your personal credit clean.

In short, business credit cards allow you to hide debt from credit reporting agencies, which would penalize you for carrying high balances. And, with responsible use, business credit cards offer much more credit than you would get from a personal credit card.

The Risks of Using Business Credit Cards for Personal Spending

The benefits of using business credit cards for personal spending do not come without risk. First, there is a separation between business and personal spending for good reasons. Credit card companies rely on your honesty to maintain that separation. Some credit card companies are more vigilant than others. They prefer that you do not use your business credit cards for personal spending. Ultimately, they may cancel your business credit card for violating their terms. Although, some banks will look the other way on how you use your business cards.

The other risk of personal spend on business cards is if your credit card is for some form of corporation. Using your business credit card for personal spending leaves you vulnerable to personal liability in the event your business is sued in court. This is a very simple mistake to avoid by simply having a separate business card for a sole proprietorship with a different name.

Another, practical, risk is the possibility of taking on too much personal debt on the business cards. If you are not good at controlling your spending, then you are only going to hurt yourself by having access to large lines of business credit. Ultimately, failure to repay business credit cards will be reported to your personal credit. Then you can expect a cascade of credit problems to result.

Ideal Use of Business Credit Cards for Personal Spending

As briefly mentioned, you could argue that using a business credit card for personal spending has a business purpose, which is to help you maintain good personal credit. But, this is stretching the meaning of a business purpose quite a bit. However, this would be the ideal motivation. The ultimate goal would be for you to convey that good personal credit into larger lines of business credit to help you expand your business. Such an argument depends on you using your larger business credit line to generate more income from your business.

In other words, if you're going to employ this dubious practice, it should serve a greater business purpose rather than just a consumption purpose. You are given access to more cash to be able to generate more cash, not for you to buy more stuff. Even so, you should be smart about it so that you do not compromise any legal protections or make bookkeeping more difficult.

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