How To Mishandle Your Business Credit Card

Business credit cards can make running a company much easier. It doesn’t matter how big or small the company is, or how many employees it has; the benefits that a business credit card offers are immense. 

For one, business credit cards can help you keep business and personal expenses separate for accounting purposes, and they can even help to keep things organised when calculating taxes. To top it off, business credit cards can come with lavish rewards that can easily be worth thousands every year.

That being said, you can’t just go gung ho on your business card. Business cards operate on a different set of rules compared to personal ones. As such, here are a few expenses that you should keep off your business card, as well as the consequences you can face if you don’t.

Personal spending

There is a very good reason why credit cards are separated into personal and business. While you technically can make personal expenses and charge them to your business credit card, doing so can lead to many issues and headaches down the road.

For example, business credit cards tend to have higher fees and interest rates compared to personal cards. The trade off is that many business purchases are tax deductible. However, personal purchases tend to not be tax deductible, meaning you will have pretty much no return on them.

Apart from that , using a business credit card for your personal spending can make accounting and tax filing much harder for you and your business. There are plenty of options for you to choose from if you want to get a personal credit card. Some credit cards might even be personally tailored to your spending habits. So

there is no reason to mix personal and business spending on the same card.

Expensive items that may take months or years to pay off

Let’s say that you need a new piece of equipment for your business. However, said equipment is incredibly pricey and will likely take months or even years to pay off. This means that you will be paying an excessive amount of interest on these items. Remember that business credit cards tend to have higher interest than normal. This combined with long repayment periods can lead to prohibitively expensive bills. While it might be tempting to get a new item that can help your business immediately with your business credit card, you might want to hold off first.

Despite its convenience, a business credit card may not be the best choice for getting a loan. If you need to get some new equipment, try looking around for any financial initiatives that are offering business loans or equipment financing. For example, Budget 2023 announced that up to RM20 billion in loans would be made available for businesses in manufacturing and technology. 

With that in mind, maybe try shopping around before you buy. You might even be able to get a small business or personal loan at a lower interest rate.

Extra knick-knacks during a business trip

Sure, there are plenty of things you can write off as a business expense during a business trip. This doesn’t mean that every expense belongs on your business credit card. Take for example entertaining clients. During such a situation, it is perfectly fine to use a business credit card, within limits. However, souvenirs for the office most certainly are not.

If you are not sure what constitutes a business expense, then you should probably speak with your accountant or financial advisor before you make any purchases that might be deemed questionable. 

Payroll

Payroll is definitely something you should not use a business credit card for. Remember, a business credit card is essentially a loan. This means interest needs to be paid. If you use this kind of card for employee wages, then you are going to end up paying a lot more than intended.

If you find that you are forced to charge payroll to a credit card due to cash flow issues, then it is time to re-evaluate your business plan.

Legal settlements

Charging legal settlements to your business credit card is like issuing huge warning signals to your card issuer. This lets issuers know that your business is seriously stressed, and card issuers are going to start questioning your ability to repay them. In addition to this, if you already can’t pay for legal settlements out of pocket, then using a credit card is only going to add more interest to your tab.

If you owe a legal settlement that you can’t afford to pay, you would be better off looking for other lines of credit, such as small business financing options that can be less costly over the long run.

Investments

There is always a risk to investments. While it is a good way to grow your wealth in the long run, investments are not a guaranteed way to do so. Sometimes it will perform well, while other times, you may lose it all. 

As such, using a credit card for investments, both business or personal, is not a good idea. There is never a guarantee on return; so you always stand to lose out.

On top of the risks that are inherent to investments, you are adding credit card interest on top of that.

The bottom line

Business credit cards can make paying for business expenses a lot more convenient. Some of the best cards out there offer valuable rewards and perks that are well worth the cost of admission. However you should always keep in mind that these cards are meant to be used for legitimate business purchases only. On top of that, always ensure that you have a plan to pay the balance off.