As a small business owner, you will no doubt be faced with many business expenses on a daily basis. You may have to purchase new equipment, re-stock the office’s supplies or have a desire to make a purchase that will help push your company forward.
The challenge, of course, is that you might not always have the cash on hand to make these purchases outright. When this happens, the first instinct of many people is to fund their business expenses using a credit card.
This can be a great way to make purchases for your company and improve your cash flow by using the buy-now, pay-later model most of us are familiar with. Of course, when it comes to business expenses, it’s best to use a business credit card rather than a personal credit card.
If you do your research to find the right card, it can be a great way for you to fund your business expenses. Let’s take a deeper look at when you should and should not use a business credit card to pay for business expenses.
Business Credit Cards 101
A business credit card is a line of credit that’s opened specifically for your business and not for personal use. Businesses of any size can obtain a business credit card. Like personal credit cards, business credit cards are a great way to build credit for your business so that you can make larger purchases using borrowed funds in the future.
One of the best parts about business credit cards is that most lenders will allow you to apply without an EIN, providing a simple and easy approval process. You’ll have to go through and application process as you would for a personal credit card, but the final approval decision usually happens quickly, unlike some other forms of business lines of credit.
Like personal credit cards, banks that issue business credit cards often extend rewards. This means that, in addition to increasing your cash flow, you could earn other perks for charging your business expenses.
Paying business expenses with your business credit card
There are many reasons why using a business credit card for your business expenses is a good idea. These include:
It increases your available credit
If you want to grow your business, you may have a need in the future for a larger loan for your business. Charging business expenses to a business credit card and paying on time is a great way to establish a good credit history for your business.
It establishes a relationship with a financial institution
When you open a business credit card, you’ll be starting a financial relationship with an institution that may also be able to offer you other products. This is a great way to build a good relationship with an institution that could help you in the future.
It streamlines your bookkeeping
When you charge your business expenses, all of your transactions will be recorded in one place. A business credit card can help you stay organized and on top of all of your business expenses without the need to manually record how much money you spent and on what.
It can earn you rewards
Depending on the specific business credit card you choose, charging your business expenses could also give you rewards. Cashback is one of the most popular items, but if you travel a lot, you could also get great perks with airlines, such as free upgrades.
It eases a cash flow burden
When you are behind on collections or don’t have a lot of cash on hand, you don’t have to worry about your entire business being stunted. A business credit card can allow you to make the purchases you need now and then pay for them later, when the cash flow is better.
Why you shouldn’t pay business expenses with a personal credit card
It may be tempting to pay for your business expenses with a personal credit card. After all, it’s certainly simpler to just carry around one credit card for all transactions and then pay for the business expenses using your business bank account.
However, there are a lot of risks of commingling or mixing business expenses with personal expenses. These include:
It hampers bookkeeping
When you mix your business and personal expenses, it’ll be very hard and time-consuming to handle your accounting. You will have to wade through pages and pages of expenses to determine which were personal and which were for the business.
It dissolves your protections
If you have an LLC or a corporation, you can protect all your personal assets from any debts or instances of your business. When you mix personal and business expenses, though, you break down that wall of protection. This is not a good thing.
It limits the spending to you
Only you can use a personal credit card. If your business grows to the point where you need someone else handling your everyday purchases, they wouldn’t be able to do that unless you have a business credit card.
It can stunt your growth
Business credit cards oftentimes have much higher spending limits than personal credit cards do. Therefore, using a personal credit card for business expenses will limit how much of a cushion you have. Ultimately, you could be stunting the growth of your business just by charging items to a personal credit card rather than a business credit card.
The best way to pay your business expenses
Business credit cards can be a great way to pay for business expenses. They can greatly improve your cash flow, help build your business’ credit and even earn you rewards and perks.
One thing to keep in mind, though, is that even though business credit cards have higher spending limits than personal credit cards, they do have their downfalls.
Business credit cards have relatively small maximum balances, compared to some other funding options, and they often have interest rates that can top out around 20%.
If you don’t pay off the business expenses you charged to your business credit card, then, you could end up costing yourself a lot of money in interest charges and fees.
One alternative could be to obtain a small business loan with Camino Financial.
Our flexible business loans put you in control of your credit, offering loan terms of up to 60 months and up to $400,000. Our monthly interest rates from 1% to 2.6% could end up costing you significantly less than charging business expenses on a credit card would.
At Camino Financial, we strive to live up to our motto of “No Business Left Behind.” We do that by helping each and every one of our customers get the money they need at an affordable rate so that they can grow their business to levels beyond their imagination. We also offer resources and educational tools to help business owners like you get the knowledge they need to navigate the sometimes difficult waters of running a small business.
Request a quote for a business loan today, and you could be well on your way to obtaining a new and better way to fund your business expenses.