Personal and business credit cards have at least this one thing in common: there are some expenses you should not charge to your card. If you run a small business, you are probably familiar with business credit cards and the advantages of using them. They often provide rewards, perks and rates that are lower than the average personal credit card.
So much so that more than one-third of small businesses use credit cards to meet capital needs, according to a 2020 report by the National Small Business Association. Even so, it is very easy to run into troubles. The biggest temptation of all is to put big purchases on your card because of the rewards and convenience – here is where the danger lies.
It’s one thing to use your business credit card to cover an unexpected cash flow gap. But it’s quite another to use it to splurge on business trip extras and high dollar items. To help you avoid falling into a spiral of debt, here are 4 types of expenses you should always avoid charging on a business credit card.
Personal Spending
While it isn’t illegal to put personal expenses on a business credit card, that does not mean that you should. Mixing business and personal can make keeping your financial records incredibly complicated. Business credit cards are also not subject to the CARD Act. The CARD Act gives consumers significant rights and protections. If you put personal spending on your business card, you will lose those protections. It could also violate the card issuer agreement with your company.
High-ticket Items
There will be points in your business operations when you really need a high-ticket item to keep up with demand, grow and even expand. With enough room on your business credit card, it can be tempting to grab for that plastic. But it’s really important to pause and take a closer look at the numbers. Credit cards are not always the least expensive loan option. You might end up paying an overwhelming amount in interest. So be sure to shop your options before you commit to that big purchase.
Business Trip Extras
When you’re entertaining clients, it is very easy to put any and every expense on the business trip on your business credit card. While entertaining clients is a legitimate expense, it’s critical to do so within limits. Spending frivolously could really hurt your business down the road when it needs extra capital. Lenders will want to look at everything. When they do, if they find ill-advised charges, it could really hurt your ability to secure funding.
All in all, the best way to avoid running into trouble with your business credit card is to completely shift your mindset. Rather than thinking of them as a source of funds, think of them as a means of record-keeping – a way to keep track of those small, necessary purchases.
Author Bio: Michael Hollis is a Detroit native who has helped hundreds of business owners with their firstamericanmerchant.com solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.
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