Seven (7) reasons not to use your personal credit card for business-related expenses.
Even today, many entrepreneurs face cash flow problems when starting their business. So they are turning to using their personal credit card to finance business-related purchases. According to a report from the Canadian Federation of Independent Business , 30% of entrepreneurs use this practice. This habit can, in the long term, be harmful to the entrepreneur and his business. Here are the top seven (7) reasons not to use your personal credit card for business expenses.
The responsibility
By using your personal card, the accumulated debts are your responsibility. Some business transactions can be high, requiring you to “max out” your credit limit. Thus, this greatly reduces your availability of funds for personal transactions.
The employees
It's common for employees to use their personal credit card for business-related purchases. From an accounting point of view, it becomes difficult to reconcile the expense and the source of financing. If you don't want to be in this situation, it's important to know about adding employees to a business credit card. Call your banker, he might be able to help you.
Business credit
Using your personal credit card may prevent you from building your business credit profile. It is essential to work on this point. Indeed, this will allow you to access a greater selection of financing options. Additionally, lenders will want to know your company's credit management history.
Credit rating
When you use your personal credit card for purchases and fail to repay the minimum amount required, it may affect your personal credit score. This can make it more difficult to obtain loans or mortgages in the future.
The end of the financial year
To make the process less painful for you come tax season, save yourself the trouble of finding your personal credit card statements to try to identify your business expenses; so don't forget anything. One more reason to opt for a business credit card, because your expenses will be consolidated.
Rewards programs
Did you know that business credit cards often feature special rewards programs that are dedicated to businesses? These can take the form of services dedicated to businesses, discounts on hotel rates or on airlines. Your purchasing level can also offset your annual credit card fees.
Restrictions in your credit card contracts
Be aware that business expenses paid with your personal credit card may be declined by the card issuer. So, read your card contracts before making expenses that might be declined.
Compare before adopting
The Ratehub.ca website allows you to compare their business credit card offers. However, be aware that if you apply for credit, your score (personal or business) will be significantly affected. So, be sure to speak with your banker before applying to multiple institutions.
If you have any questions, please do not hesitate to contact us, we are here to help.