The Pros and Cons Of Using Your Own Credit Card To Fund A Business

If you’re a budding small business and you need financing, where do you go? If you’re like the many small business owners out there, you turn to your personal credit card. One-third of business owners use their personal finances to manage cash flow, according to reports.

If you think about it, the figure isn’t surprising. The hurdles to obtaining a business credit card can be high. Banks typically want two years worth of financials before they’ll issue a card. That’s a tall order for a business just starting up.

For some sole proprietors, it’s easier to use a personal credit card than add a business card to their wallet with extra annual fees. Even if their personal and business expenses get mixed, today’s accounting software is swiftly learning to separate them, thanks to artificial intelligence and new products that allow users to categorise and tag expenses at point of sale.

Banks increasingly recognise the role of personal credit cards in running a small business. Some lenders offer direct feeds from a personal card into small-business accounting platforms such as Xero, and more banks are building this feature.

With a business credit card, an owner has more control over spending. He or she can set spending limits for each employee (if applicable), and gain broad visibility over their purchases. Segregation of expenses is clearly defined.

Owners are normally covered should an employee misuse the card, such as embarking on a personal shopping spree. Contrast that with a personal card, where a business owner would be on the hook. Similarly, should a business go under, any unpaid business debts on a personal card could affect the owner’s personal credit score.

A business credit card will also typically include travel insurance that’s broader than what’s available at the personal level. And perhaps most importantly, business credit cards usually carry a higher credit limit (and a higher annual fee). As a business grows and requires more investment, a larger credit line is indispensable.

Banks understand this. By putting small businesses on business products including credit cards, lenders can better segment customers and offer the them right product at the right time.

Ultimately, the choice of card depends on the size and spending habits of your business, and what features the bank offers along with that card.