While there is no doubt you can get yourself and your business into a lot of trouble by misusing your credit cards, both types of credit can also be very rewarding – as long as you recognise that they are two very different forms of finance.
Both business and personal credit cards can offer you a range of benefits, including:
- Improving your credit rating. When you are able to pay off your credit card balance in full each month, or at least make the monthly payment on time you build up a reputation of being responsible with credit. This means your successful credit application goes into your credit history and you build up a strong credit rating for yourself or your business which can help you make successful applications for credit in the future.
- Credit card rewards. Many business and personal credit cards now have a rewards program attached, and you no longer have to be stuck with high interest rates and high fees just to be able to collect rewards points. A credit card may help you collect points towards an existing rewards program, or for use in their own rewards ‘shop’. In other cases you can earn cash back rewards which can go towards paying down your balance or your fees.
- Protection. Most business and personal credit cards will offer a range of protections for you too. Even on a standard account you will find purchase protection in case an item you buy is lost or damaged, extended warranty protection which extends the manufacturer’s warranty on items you buy on credit and travel insurance which can cover you for car hire and lost luggage for example. Your credit card provider will also continuously monitor your account to watch for any unusual activity which could be fraudulent use or a scammer who has gotten hold of your details.
On these points business and personal credit cards compete well, however, there are some important differences you need to be aware of when considering how to use your credit cards. There are also a myriad of benefits to having a separate business credit card, and dangers to be aware of which will help remind you to keep your spending separate.
Benefits of a Business Credit Card
Having a business credit card can make you feel like you’ve really arrived as you can whip it out at a working lunch, buy office supplies online and never have to worry about cash flow again. Having a separate business credit card also offers you the following benefits:
- Your own rewards. When you have a credit card you will use it for bills, fuel and other necessities, so it is especially nice when you can be rewarded through a points program simply for using your card. However, if you are using your personal credit card for business expenses, you can’t always benefit from those rewards and benefits. For example, if you booked a business trip on your personal credit card, you may not be able to take advantage of the benefits of travel insurance included on the card, as the conditions may state that the insurance doesn’t cover company travel.
- Generous and flexible credit limits. Credit card providers are generally willing to offer a higher credit limit to you as a business. This allows you to maintain cash flow and keep your business running smoothly because you know you have enough money on hand to pay your bills, buy supplies and cover payroll. Plus, you can also take out additional business credit cards on the one account so that each of your employees can use the company credit for business expenses when they need to. Your business credit card will also allow you to set different credit limits on each additional employee credit card to maintain control over spending.
- Tracking and administration. Having all of your business expenses on one credit card statement makes it easy to track and record your spending. Many accounts will even allow you to import your credit card statements directly into your accounting program to enter your spending. By giving your employees their own credit cards you also don’t have to worry about petty cash or authorising cheques and with all of the cards on one statement you can still keep close watch on their spending. Plus, because employees are spending on the company credit card, you don’t need to go through mountains of receipts from their business spending which need to reimbursed.
- Discount business supplies. The issuer of a business credit card will often have partnered deals with companies who can offer you discounted office supplies, hotel accommodation, car hire, airfares and mobile phone plans. If you shop around for a business credit card which is partnered with products and services your business uses you can enjoy generous discounts on many of your expenses.
- Increase your credit limit. A personal loan or business loan is extended for a certain period and for a certain amount, however, using a business credit card for finance gives you greater flexibility. You don’t always have to use your full credit limit, but you know it is there instantly if you need it. Plus, if you are a good customer you can quickly and easily apply for an increased credit limit as your business grows.
Should You Use a Business or Personal Credit Card?
As well as the additional benefits of using a dedicated business credit card for your company’s expenses, it is important to keep your personal and business credit cards separate so that you can remain in control of your business. With a separate business credit card you can clearly see what you are spending on your business and how much money you have left available. Even though you’ll have an extra credit card and statement to look after, it will actually make your life easier because you can track company growth and expenditure separately from shoe sales and school fees.
- A business credit card is as dedicated as you are. If you run a printing business then you don’t dilute your company by trying to offer dog walking services to your customers, instead you remain dedicated to your core business, and providing the best service in your area of expertise. Your business credit card will do exactly the same for your business, going beyond the capabilities of a personal credit card to keep up with you.
- Limited liability. Any purchases made on your business credit card will remain the liability of the business, not you personally. This protects your personal credit rating and your other assets.
- Liability insurance. Your business credit card should also be covered under your company’s liability insurance which will protect you in case of any fraudulent use on the card.
- Tax breaks. In some cases your business may be eligible for tax deductions on the purchases you make on your business credit card.