While enjoying a business dinner with a client and charging the expense on your business credit card is reasonable, using the same card to make personal purchases, like buying a trendy jacket on sale, is a breach of the card's terms and conditions.
Even though occasional personal expenses might go unnoticed by the card provider, it’s crucial to understand that most credit card providers forbid using business credit cards for personal purposes. Although it might not be illegal, it is incorrect and can lead to several consequences, including:
1. Account cancellation
Many credit card issuers expressly prohibit the use of business credit cards for personal expenses. While occasional small personal expenses might slip under the radar, frequent non-business spending on the card could be seen as a violation of the contract terms. In such cases, the card issuer may decide to cancel your credit card account for violating agreed terms of usage.
2. Impact on business funding
If you require business finance at some point in the future, a lender could ask for your credit card statements, and personal expenses on your business card could affect the chances of approval.
Lenders and investors require transparent financial records to evaluate a business's financial health and creditworthiness. Mixing personal expenses with business expenses could raise concerns and potentially limit the funding opportunities available to your business.
3. It could get challenging to keep track of your business expenses
Regularly using your business credit card for personal expenses could make it challenging to properly track and manage your business-related expenses. This can also create complications during tax time when it comes to documentation.
Business owners need to provide accurate records of business expenses to claim deductions. Having personal and business expenses on one card can complicate this process, as it can become challenging to distinguish between the two and personal expenses are generally not eligible for tax deductions. By using separate cards for business and personal expenses, you can maintain clear and accurate records for business costs, which could simplify accounting for your business to a great extent.
4. Loss of consumer protections
Similar to personal credit cards, certain business credit cards come with extra perks such as complimentary insurance, consumer protection, extended warranties on purchases, and the opportunity to earn rewards or points for various benefits like travel or gifts. However, it's crucial to note that these rewards and protections are applicable only to eligible business expenses, not personal purchases.
If you use your business credit card for non-business spending, the card issuer may identify it as unusual activity and may not extend the benefit of the consumer protections you typically get with the card to your personal purchases.