Many small and medium business owners use credit cards in the course of their business. The problem is that many make the mistake of using their personal cards. There are a couple of major problems with this:
First, if you use your personal credit cards for your business, you’re blurring the line between business and personal finance. The better separation you can achieve between your business finances and personal finances, the better off you’ll be. For this reason, a credit card in your business name is the best route.
Second, using your personal cards for your business puts your personal credit at risk. If the debt belongs to the business, shouldn’t it be on the business credit?
Most people don’t think this is a big deal until they run into trouble and no longer have their personal credit to fall back on.
In one example, a couple in business together accumulated more than $100,000 of unsecured debt on their personal credit for their business. When revenue from the business fell, although the business was initially able to stay afloat, the couple was forced to file for bankruptcy.
With their personal credit destroyed, they were no longer able to obtain credit to support the business, and as a result, the business ran into some serious difficulties. The stress took its toll and the couple is now divorced. Perhaps things could have been different if you had relied on business credit instead of your personal credit.
Maybe you’re thinking that your business won’t have a problem, or that you don’t use credit cards much anyway. What’s the point then?
Using a business credit card in your business offers some real advantages in addition to the two already mentioned. For example:
1. Streamline operations and automated expense tracking. Paying expenses can be much easier to manage with a business card, and in many cases monthly or yearly reports can be generated to help categorize and analyze expenses.
2. Business cards have “rewards” programs too! If you have a lot of regular monthly business expenses that can be paid for with a rewards card, you could easily get $500 to $1000 a year (or more) in cash rewards, or even free plane tickets if you use a rewards card from trip .
3. Manage employee expenses. Business credit cards can be set up to have employee spending limits, which can help manage employee spending in the field.
4. Using a commercial card helps you build credit for your BUSINESS, which is critical in today’s economy.
As you can see, there are several important advantages to using a real business credit card for your business.
A helpful tip for those looking to establish business credit: Try to get approved based on the creditworthiness of your business rather than your personal creditworthiness.
This means avoiding providing your social security number on credit applications for your business credit card. If you don’t get approved based on your business credit alone, you can try applying and including your personal credit information as needed.