As a small business owner, you are likely accustomed to using a business credit card. They typically offer lower rates than an average consumer credit card, combined with rewards and perks angled towards businesses.
This can make it tempting to load it with purchases that should never be charged on a business credit card. From personal items to legal costs to high-priced items drawing interest and languishing on your company’s credit card bill — many people fail to consider what these purchases could cost them in the long run.
Use Business Credit Cards to Benefit Your Company
Business entities and companies are formed to produce high returns and generate profits using their capital. They do this by efficiently utilizing available funds, including business credit cards.
This means only using their cards for activities and items that create value for the firm. The following are expenses that fail to meet that criteria and could instead lead to the opposite effect.
It may be legal to use your business credit card for personal expenses; you should avoid it altogether, if possible. Though higher limits and credit card perks make it tempting to use them on personal expenses, it’s not worth it. Besides creating a hassle for you or your accountant at tax time, you put your business in jeopardy, potentially:
- Damaging your business credit score.
- Voiding your credit card issuer agreement.
- Breaching your company card spending policies.
It helps to have created a detailed list of business expense qualifications and a transparent method of tracking your budget. You should also keep in mind that lenders will analyze your company’s financial records if you ever have to apply for a small business loan. This will likely include past credit card statements.
If personal charges are mixed in with your business expenses, it will reflect poorly on your firm and could cost you the loan.
The CARD Act
Personal credit cards are protected under the CARD (Credit Card Accountability Responsibility and Disclosure) Act, giving consumers notable protections and rights. However, business credit cards do not fall under that protection. By adding personal expenses to your business credit card, you may be forced to forfeit those protections.
Business credit cards often have high limits, making them attractive if your small business needs funding. However, wiping out your credit limit with one or two purchases will lower your credit score by increasing your credit utilization ratio.
Your credit utilization ratio is the amount of used credit divided by the total credit available. (This ratio should be kept under 30%, but even lower if possible.)
Plus, your credit card likely carries a higher interest rate. Your charges could add up quickly if you plan to spread out payments over several months. Cheaper financing alternatives are out there, like personal or small business loans or a line of credit.
A high credit utilization ratio plus your card’s annual percentage rate (APR) can be an easy way to create financial problems for your firm. Avoid charging anything to your business credit card that you can’t pay off right away.
A growing number of business credit cards are utilized for gambling and purchasing cryptocurrencies. This occurs despite several card issuers prohibiting cryptocurrency charges. Though, by doing a quick online search, you’ll hit on others who are willing to accept riskier charges.
It can be tempting to use your business credit card as a quick resource for investing; however, if your investment drops or gambling prospects fail, you put your company’s bottom line in peril. Plus, credit card fees, finance charges, and high interest rates can eat into business resources that you can use elsewhere.
It is common to have a legal consultant to keep your business out of hot water or register legal documents, and using our business card for some of those costs is perfectly fine. The problem starts when your credit card is used to charge litigation costs or pay off legal settlements.
Those types of expenses can send a message to investors or credit card companies that your firm is in distress, and they may doubt your potential to repay your remaining debt.
If you face litigation, you should look for ways to negotiate a payment plan to avoid sending a negative signal to your stakeholders.
For many companies, payroll is their most significant expense. By paying your employees with your business credit card, you risk racking up a lot of debt through transaction fees and added interest.
There are online services that allow businesses to pay employees using their credit card; some charge more than 2.5% as a transaction fee. Plus, you will be expected to cover your credit card interest charges if you fail to pay it off by the due date.
Putting your payroll on your business credit card is an indication you need to rework your business plan. For a less expensive way to finance your payroll, consider a business line of credit or a short-term loan through your credit union or bank.
If You Need Funding Today, Sign Up for the Revenued Card
If your credit history has been impacted by poor financial decisions or a mismanaged business credit card, you can gain access to working capital. The Revenued Business Card is for business owners that may have a subprime credit score but run a solid business and are working to turn their finances around. You may be eligible if your firm nets at least $10,000 per month, has a minimum bank balance averaging $1,000 per day, and doesn’t go negative more than three days in a month.
Call +1 (877) 662-3489 to find out more or join our waitlist. At Revenued, we care more about your business and less about FICO.
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