Can you use a personal credit card for business expenses?

Technically speaking, a personal credit card can be used for business expenses, and many small business owners do. But that doesn't necessarily mean they should.

‍While there's no law preventing people from using a personal card for business expenses, they will lose the legal protections they'd get with a business credit card if their company runs into debt. They'll also have a tough time separating their business and personal expenses when tax season hits.

For those reasons, using a dedicated business credit card is a widely accepted best practice. Ramp gets into more detail about when and why a personal card may be used for business expenses, some of the risks involved, and the benefits of using a business credit card instead.

Reasons for Using a Personal Credit Card for Business Expenses

As a sole proprietor, small business owner, or startup entrepreneur, it's convenient to use a personal card for business purchases like office supplies or travel expenses. There might even be times when it's unavoidable.

Like, for instance, when a business owner is out for a client dinner and realizes they forgot their corporate card. When it comes time to pay, they have to reach for their personal credit card instead of the card they've earmarked for business expenses. ‍

Alternatively, there may be situations where business owners may have both their personal and business credit cards on hand when paying for a business expense, but find themselves allured by the miles or cashback they'll earn by using their personal card—so they use that one instead. ‍

Yet another scenario could be that they have no choice: They may have to use their personal card because they don't qualify for a business credit card or line of credit.

FAQ

Can I write off business expenses paid from my personal account?

Though it's not ideal, if you already used a personal credit card or bank account to pay for a business-related expense, you can still write off the expense at tax time. Any ordinary and necessary business expense is tax-deductible regardless of the payment method you used.

Risks of Using a Personal Card for Business

The main risk of using a personal credit card for business is that there are fewer legal protections should the business become insolvent. Using a personal consumer credit card for business opens entrepreneurs up to personal liability for business expenses, which can damage personal credit score and even lead to legal action.‍

One of the main reasons corporate structures exist is to protect personal assets from possible business disputes, but consumer protections are thrown out the window when personal and business finances get mixed together. That can have serious legal implications, which could lead to some unfortunate scenarios:

• Personal assets could be seized in a lawsuit against a business.
• Family accounts and co-owned property like a home could be liable for seizure.

In addition to becoming liable, mixing up business and personal finances can potentially damage a business.

‍Using a personal credit card for business purposes complicates finances and confuses credit bureaus, creating room for bookkeeping errors and credit reporting disadvantages. This is especially true for a nonprofit, which has its own unique tax and bookkeeping requirements. Using a separate business credit card for nonprofits is highly recommended.

All the reasons for using a business credit card over a personal card also apply to banking. Opening a dedicated business bank account and checking account that's separate from  personal accounts is one of the first things to do when starting a business.

All the major banks and lenders offer business checking accounts, including Chase, Capital One, American Express, and Wells Fargo, but some are better suited to the needs of small businesses than others.

FAQ

Can I turn my personal credit card into a business card?

Yes, depending on the issuer, you may be able to switch an existing personal credit card to a business credit card. But be aware that closing a personal credit card could affect your credit score, so verify whether the personal credit card account will be fully closed out or transformed into a business card. There may also be stipulations around balance transfers since not all business credit cards allow them.

Can Employees Use Their Personal Cards for Business Expenses?

Employees can use their personal cards for business as well, but this often creates more problems than it solves.

In many companies, employees can use their personal credit cards for business expenses and request reimbursement afterward. As long as the purchase qualifies as a valid business expense, and the company has a formal expense reimbursement process in place, this shouldn't be too much of a hassle.

But the process of filing and approving expense reports can be time-consuming, error-prone, and opens businesses up to the risk of expense fraud. On top of that, relying on employees to front business expenses could impact morale if businesses can't keep up with reimbursement requests and employees can't pay off their balances.‍

It's more efficient for everyone involved to issue business expense cards with built-in spending limits and automatic receipt matching. Giving employees corporate credit cards can help streamline expense tracking—not to mention the card perks and rewards from employee spending that would otherwise be missed if they used their personal cards.

Advantages of Using a Business Credit Card

In addition to stronger legal protections and a clearer separation of finances, there are many other advantages to using a business credit card vs. a personal credit card:

1. ‍Builds Business Credit

From small, everyday business purchases to large-scale loans, a business needs credit to function. One of the primary ways to demonstrate creditworthiness is to keep business credit history and credit score strong. One of the best ways to build your business credit score (especially as a new business) is by using a dedicated business credit card.‍

Building business credit over time allows the business to access better interest rates and terms on any loans that may need to be taken out. Business credit can't be built if a personal credit card is used for business expenses, which business owners might regret if they ever need to take out a loan for equipment, real estate, or other larger business expenses.

2. Access to Higher Credit Limits

Running a business can be expensive, so having a line of credit to help cover costs is essential. The best business credit cards are purpose-built for the demands of running a business, including higher credit limits than personal credit cards. Data shows the average business credit card limit is $56,100, more than $25,000 higher than the average personal credit card limit.

3. Rewards Programs Tailored to Business Spending

Business credit cards tend to optimize their rewards programs for common business purchases like fuel, office supplies, and travel costs. That means business owners stand to get more points, miles, or cashback on eligible purchases than they would with a personal credit card. Additionally, some cards let users tailor their rewards program by selecting their own bonus categories.

4. Free Employee Cards

Many of the most attractive consumer credit cards require a fee for additional cards or authorized users. In contrast, business credit cards typically offer unlimited employee credit cards for free, plus additional features like customizable spend limits and employee expense monitoring. The best corporate cards offer unlimited virtual cards as well.

5. Spend Tracking and Expense Management Features

Finally, the best corporate card companies offer additional ways to help people save without incentivizing unnecessary spending. This could be through an expense management platform that analyzes a company's spending in real time, automatically enforces a company's expense policy, finds areas to cut costs so owners can improve budgeting, and boosts the bottom line.

‍Is It Illegal to Get a Business Credit Card for Personal Use?

While using a business credit card for personal expenses may not be illegal per se, it's generally not recommended due to the potential complications it can create.

Specifically, charging personal items to a business credit card can violate the terms of the agreement made with the credit card issuer. Violating these policies could lead to penalties, account closure, or other consequences.

Also, mixing personal and business expenses in credit card usage can complicate  accounting and tax reporting. As discussed above, it's best practice to keep personal and business expenses separate for tax purposes.