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5 Things to Consider When Using Business Credit Cards for Personal Use

Typically, most people will tell you to avoid using Business Credit Cards for Personal use, but who wants to be typical? You can and should use Business Credit Cards for personal use just as long as you take into consideration these 5 things

1. Do Not Comingle Business and Personal funds.

You’ve got to keep ‘em separated. Many business owners make this simple mistake. They use the business credit cards for groceries or the personal credit cards to buy office supplies. Add to the mix that most people don’t keep their receipts and you’ve got a real mess on your hands come tax time. 

My attorney tells me to avoid transferring funds between my business accounts and personal accounts without the appropriate documentation. There are many other steps you can take to avoid comingling your business and personal funds. I recommend that you educate yourself and hire competent legal professionals to help you.

If you ask 10 CPAs if you can use Business Credit Cards for personal use, you’ll likely get answers ranging from ‘No’, ‘Yes’, or ‘It depends’. Well that clears it up. If you’re not educated you are at the mercy of those who are.

You may be asking yourself, ‘I thought you just said that you could use Business Credit Cards for personal use’. Yes, you can, but there is a right way and a wrong way. Comingling funds is the wrong way and it can lead to your creditors piercing your corporate veil (the liability protection a business provides its owner) and coming after everything.. 

2. Understanding The Power of Write-Offs

There are over 400 write-offs in the IRS tax code for business owners. Learn the ones that apply to your business to reduce your Adjusted Gross Income (AGI) and keep more of what you make.

Most people pay their taxes and then spend the remainder of their money on all their bills. Learning how to write-off your cell phone bill before you pay taxes will reduce the amount you owe. There are also write-offs for the gas and maintenance of your vehicle, and even a portion of your mortgage, utilities and groceries can be written off plus so much more.

Here is where you can use your Business Credit Cards to pay for legitimate business expenses for personal use. Take the time to learn about tax and legal strategies related to your business and seek help from competent legal professionals to help you convert as much of your personal expenses into legitimate business write-offs.

I have learned that asking for permission is the same thing as seeking denial. I can’t emphasize enough the importance of educating yourself on tax and legal strategies for your business. That way you can go to your CPA or Tax Attorney and tell then what you legally want them to do instead of letting them tell you what to do.

3. Understand the Difference Between Informal and Formal Lending

Did you know you can legally borrow money from your business but there are risks involved if done the wrong way? There’s a difference between informal and formal lending. That means there is a right and wrong way to borrow money from your business

Informal lending is when you make a loan from your business to yourself without the proper documentation. The IRS could consider this a distribution or dividend and tax you on the amount.

Formal Lending is when your business lends money to yourself but there is documentation such as a promissory note with an interest rate, regular payments as well as collateral (depending on the amount borrowed). The accounting (or books) must also record the loan appropriately.

Business owners who fail to understand the legal ramifications of informal loans can seriously jeopardize their business. If the business has partners or investors and an informal loan was made, then the partners investments are also at risk.

Here is another area where you can use your Business Credit Cards to make a legitimate formal loan for personal use. Imagine if your business extended you a loan or line of credit based off of the equity in your home. You could set up an enforceable promissory note, file a deed of trust with the county, and setup regular payments at a minimum legal interest rate. The best part is that you’d be paying your business back with interest.

It goes without saying that having the appropriate education on formal lending can save you and your business money. I also recommend consulting with competent legal professionals when making legal decisions especially those of a financial nature. 

4. Be Aware of Credit Line Limits and What You Can Afford

Don’t bite off more than you can chew. There are many creative ways to legally use Business Credit Cards for personal use but you must not over extend yourself or your business.

Business Credit Cards come with credit limits anywhere from 10-100 times that of personal consumer credit cards. When you combine that with the fact that Business Credit reporting and utilization do not show up on personal credit reports; it makes it tempting to use or borrow large amounts to consolidate personal debt or make major high-ticket item purchases.

Your business credit score is only affected by on-time payments. If you overextend yourself, you could find it difficult to make your minimum monthly payments. When payments are late or missed, your business credit score will drop. Your creditors may send you to collections. If you’re thinking about having your business file for bankruptcy, think again. If the Business Credit Cards were used for personal expenses or you have an outstanding loan to yourself from your business, the debt could be applied to you personally and you’ll be expected to pay your creditors back every penny plus interest.

Be responsible. Be ethical. Pay back what you owe. If you can’t afford it, then don’t do it. There is no shame in admitting that you need a little help with your finances; especially since they don’t teach this stuff in school. Get educated and seek out help from competent professionals that can help you set and keep a budget.

5. Understand the Impact of Leveraged Credit on Your Credit Score

We’ve already established that when done right you can use your business credit cards for personal use, but how can we use our personal credit to build and grow our business. You can build up your personal credit so that you can give your business a personal guarantee. 

Many business owners leveraged their personal credit to start their business, only later to find that their credit score dropped due to high utilization. Using Business Credit Cards to transfer that debt from your personal credit cards to your business credit cards helps your personal credit score go up by lowering your personal credit utilization.

Many business owners will use this boost in their personal credit score to secure new personal credit cards, a personal line of credit, or a personal loan. This is okay but consider that there may be a better way to use your personal credit.

Personal credit cards compared to Business Credit Cards give you less available credit and when you consider that you should to keep your utilization under 30%. Business Credit Cards also have lower interest rates than personal credit cards. We’ve already established that business credit cards have 10-100 times higher limits than personal cards but even more important is the fact that there is no utilization restriction placed on Business Credit Cards.

Consider a $20,000 personal credit card versus a $20,000 Business Credit Card. If you exceed $6,000 on the personal credit card, it begins to adversely affect your credit score. You could use all $20,000 of the Business Credit Card and as long as you make the minimum monthly payment on-time it will not adversely affect your business or personal credit score.

If your credit score is 680 or better and your utilization is under 30% and if you can show that you have verifiable income. You could give your business a personal guarantee and secure Business Credit cards with limits of $25,000 up to $150,000.

There is a synergy between your business and personal credit that when used together the right way and eliminate your personal debt, improve your personal and business credit scores, and build and grow your business as far as your dreams will carry you. But if you choose the quick and easy path and just ‘wing it’ you could find yourself and your business in a heap of trouble.

Get educated today and work with the right professionals like Wise Guys In Ties and learn about the many ways to use your Business Credit Cards for personal use. For more information contact me today at 888-524-9273 and schedule a 30-minute free consultation.

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