Why Not Use a Personal Card for Business Expenses?

For many entrepreneurs, the path to independent business ownership is paved with hard work and a considerable chunk of their own money. When one is just starting out, and expense management is relatively uncomplicated, it’s tempting to mix business and personal expenses by paying cash or using a personal card. After all, you’ll collect all the loyalty points, and you’ll absolutely be sure to hang on to receipts so you can sort out what’s what at the end of the year.

You may think there is no difference between your credit card and a business expense card; and until a few years ago, that assumption was mostly correct. With the introduction of the Credit CARD Act, and the more recent small business tax changes, a clear line between your personal spending and how you manage business expenses is more important than ever. Let’s start off by examining a couple of reasons why business owners may choose not to use a specifically-designated business credit card.

Credit CARD Act

Developed as part of a broad legislative response to the 2008 financial crisis, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act) introduced sweeping changes to the rules of engagement for credit card issuers and lenders. It is important to bear in mind that the Credit CARD Act does not apply to business cards — it only applies to personal cards.

The consumer protections provided under the Credit CARD Act, like caps on interest rate hikes, late fee restrictions, and clear due dates, are helpful to consumers and small business owners alike. The exclusion of business cards from the legislation may feel punitive to small business owners. However, many issuers will extend these same consumer protections to small businesses as a courtesy. When devising a business expense management strategy, asking for what you want from your financial institution can go a long way.  

Challenges Getting Business Credit

In some cases, small business owners would love to have a corporate expense card, but the personal credit rating of a sole proprietor is often taken into consideration when one applies for a business expense card. Given the higher limits that are typically associated with business cards, this can leave some small business owners out in the cold if they don’t have an exceptional credit history.

In days gone by, this might have left an entrepreneur with company expenses no choice but to use a personal card to make necessary purchases. After all, it’s becoming increasingly difficult to order supplies, register for utilities, and manage day-to-day expenses without a credit card. In these cases, products like prepaid corporate cards can provide an alternative that eliminates the potential to rack up debt on a personal card.

When you consider added benefits like the ability to track employee expenses when your company grows, in addition to a clear way to separate company and personal expenses, prepaid cards for business can present a winning solution.

Separating Personal and Business Expenses

Perhaps the most important reason to ensure a clear division between business and personal expenses comes during tax season. Making sure you don’t miss out on an opportunity to claim a business deduction is critical, and yet, it is estimated that some $10.7 billion in business expenses go unclaimed every year.

By using a separate card for business charges, whether that’s a traditional business credit card, or a bespoke solution like a prepaid debit card with enhanced expense management capabilities, maintaining a clear separation between personal and business spending may be easier than you think, and more important than you imagined.

The dash™ Prepaid Mastercard® provides small business owners with a prepaid alternative to traditional credit products with an integrated business expense app. Sign up today to make your business expense management a dash.