Now you can listen to our blog post, "Loans While On Employment Insurance Benefits" while…
Now you can listen to our blog, “Using a Personal Credit Card for Business Purchases” while on the go.
Business owners often ask themselves if it is a good idea to use their personal credit cards for business purchases. The answer is that it depends on the company.
For example, if the company has a high volume of purchases, then it might be a good idea to use your personal credit card because this will help you get rewards points and other perks.
However, if the company has a low volume of purchases then it would be better to use a corporate credit card because this will help you keep your personal and business expenses separate.
Although it is fine to use your personal credit card for business purchases, you should not make a habit out of it. This guide will list all the main reasons why you should avoid using your personal credit card for business purchases in the future.
1) High-Interest Debt
If you carry a balance on your credit card from month to month, you have (at least some) high-interest debt and are paying too much interest. Yes, small business owners are frequently in debt, but if you can avoid it, high-interest credit card debt should not be included in that debt. For additional information on dealing with small business debt, see here. The good news is that you can do something about it by asking for a small business loan and then stopping using your personal credit card.
2) Small Business Loans are Designed Specifically for Small Businesses
You’ll need something else to cover business expenses now that you’ve stopped using your personal credit card. A small company loan will accomplish exactly that: it will meet your business’s expenses. Tiny company loans are for small firms, and while this may seem self-evident, it’s worth stating anyway.
A small business loan is far more important than a credit card because your small business has special financial needs and, more often than not, your financial investments will not provide a return for a long time. Credit cards are fine for minor personal purchases, but you should consider a small business loan as a long-term investment in your company.
3) Tax Season Will Be Difficult
Tax season will undoubtedly be a nightmare if you continue to utilise your personal credit card for both personal and company expenses. You’ll almost certainly wish to deduct your business-related expenses when filing your taxes. If you use your personal credit card to pay for these business-related purchases over the year, you risk giving yourself substantial tax problems that could result in an audit. Because your personal income taxes and your business taxes are two distinct entities, getting them muddled up because you only used one credit card is something you should really consider.
4) Your Personal Credit will be Harmed
When you use your personal credit card to pay for company expenses, you’re jeopardising your credit and financial future. While your small business may be doing well right now (and ideally will continue to do so), the future is impossible to predict. Starting and maintaining a small business is a difficult and hazardous undertaking. If your company runs into financial difficulties, your personal credit may suffer as a result.
Furthermore, because your personal funds are connected with your business’s finances, your individual assets may be at stake if your company has legal troubles.
5) Develop Your Company’s Credit Profile
Your business will not have its own credit profile if you just use your personal credit card for business expenses and never set up a business credit card. With a corporate credit card, you may improve your company’s credit report and score.
Furthermore, having a business credit profile and a high business credit score can provide you and your company with even more financial opportunities in the future. Potential business lenders will look for a business strategy and a profitable firm, but they will also look for evidence that you can manage credit responsibly and effectively.
All small business entrepreneurs in Canada have access to convenient, rapid, and inexpensive small business financing. Gone are the days when you had to rely entirely on banks for funding; do some research and you’ll be astonished at how many alternative small business lenders are available and ready to assist you in achieving your financial objectives.
The Bottom Line
At Lionsgate, we specialize in helping people get the extra cash they need, obtain funding for private mortgages, as well as for other real estate transactions. If you are looking to buy land in Canada, get a mortgage or apply for a loan, fill out the form below. Or, You can leave us a message and we will try to connect you with local lenders and sources that best meet your needs.
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