Having a business credit card gives business owners and authorized users a powerful financial tool to make purchases on the company's behalf. They can make it incredibly easy to resupply when needed, as well as provide a simple way to track and manage expenses like bills and vendor costs. They are also similar to almost any other credit card in that misusing them can have serious consequences, which is often what users wonder about first when personal expenses end up on the company card either by accident or on purpose.
Technically, using a business credit card for personal expenses isn't a violation of the law. However, in most cases, it will violate the terms set forth by the card issuer. Violating these terms can have significant impacts on your account status, as well as your personal liability for business debt.
While not illegal, misuse of a business credit card can leave the user and the account owner open to significant liability, debt, and even tax hassles. There are a lot of things that can happen if you use a business credit card for personal use, and while going to jail may not be one of them, knowing the full extent of what it could cause can help guide your personal spending and keep your financial life as stress-free as possible.
Using A Business Card For Personal Use
There are times when mistakes or misjudgments will happen, and these may not be grounds for criminal charges; they can take significant effort to untangle and sort out. In some cases, these missteps can cause challenges with the card issuer and may result in the business losing that line of credit due to closure.
Many of the major credit card issuers, like Capital One, Chase, & American Express, all have specific verbiage in their cardholder agreements that mentions the card is used solely for business purchases and expenses. Capital One, for example, outlines that their business rewards cards are only to be used for "business or commercial purposes and not for personal, family, or household purposes."
Putting Personal Expenses On A Business Credit Card
The potential downsides when you use a business credit card for personal expenses are many. In addition to violating the terms of the credit agreement that you signed when opening the account, the consequences can spread to many other areas of your business and can even open you up to increased liability with debt and taxes.
Violation Of Card Terms May Cause Account Closure
Anytime you open a new credit card account, there are terms of service and other agreements that you must agree to and subsequently sign. These terms often dictate how the credit card may be used, and business cards stipulate that the card may only be used for business expenses, operating costs, corporate entertainment, and similar commercial expenses.
Most modern business cards specifically prohibit personal use and list account closure as one of the potential remedies. While only the account owner agreed to these terms, they also agreed to be responsible for all card activity. This includes activity from all authorized users that have been added to the account or given a card. This means that anyone else causing violating the terms can also be seen as grounds for account closure. Frequently the credit card issuer's bank will compare purchases to spend patterns, automatically locking the account.
You Could Be Found Personally Liable For Business Debt
One of the big worries with getting your business and personal purchases intertwined is that it could lead to you shouldering liability for business debt and even legal troubles if your debt goes to court. This is why the account owner will need to sign a personal guarantee during the account application process, which makes them personally liable for business debts if the business defaults.
Just as you'd be on the hook for putting a huge business expense on your personal credit card, you'll be similarly likely to be responsible if there are significant personal purchases made on the business card and the business defaults or goes under. In the simplest terms, it's something to avoid if at all possible.
You Can Lose A Significant Amount Of Consumer Protection
Personal consumers have a relatively robust set of protections that are afforded them by the Credit Card Accountability Responsibility and Disclosure Act, also known as the Credit CARD Act. These protections include things like preventing card issuers from raising interest rates without first giving you notice, stopping the elevation of interest rates on existing balances, prohibiting charging interest for debt that is paid on time, and applying recent payments to the charges with the highest interest rates.
While these are invaluable for the individual consumer, there is a catch. They are only applicable to personal credit cards and do not apply to business cards. While there have been attempts to impose these same requirements on business cards, none of the proposed legislation has passed.
There Could Be Serious Personal Credit Rating Repercussions
Many people use a business card for personal purchases thinking that it can help boost their personal credit score when actually the opposite is true. What most people don't realize is that the business credit card companies mostly only report business credit card bureaus.
This means that any gains you see won't translate to your score. Although, since you did provide a personal guarantee when you signed your cardholder agreement, you did accept the personal liability for that debt. This means that if you put personal expenses on the business card and can't pay them, your personal score, as well as that of your business, can suffer significantly.
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You'll Probably Pay More Than You Need To
Simply put, putting your personal charges on the company card will end up costing you more than if you put them on your personal card. That is mainly because personal credit cards have much lower interest rates than business credit cards. The trade-off for the business cards having higher interest rates is that the purchases that go on the company card are going to be largely tax-deductible. Making personal purchases, particularly if you carry that balance, will cost you significantly more.
Expense Tracking Can Become Much More Difficult
Since you're mixing business expenses with personal expenses, unless you're incredibly meticulous with receipts and personal recordkeeping, sorting out those expenses later can be extremely complex and difficult. Since tracking your business expenditures is a crucial part of understanding how your business is growing, where it's losing money, and where costs can be cut, mingling personal expenses with that can muddy the waters.
This contributes to confusion over the financial health of your business, which can make things like filing taxes, attracting investors, or applying for loans or other business funds incredibly difficult and potentially impossible. Even when some expenses are filtered out, the spending data will still be skewed to some extent.
What Happens If You Use A Business Debit Card For Personal Use?
In general, putting personal expenses on a business debit card is not a smart or financially responsible thing to do. There are very few upsides to doing it, often limited to immediate purchasing power, and countless downsides or risks that the user may face. The sole upside, having immediate purchasing power, is often only the case because the consumer's personal debit account is empty and they don't have available cash, and the business card is handy and has funds available when the consumer needs it. Using a debit card may also have additional conditions depending on where you live since a debit card draws from an active checking account and may have more stringent usage prohibitions.
Is Using A Company Credit Card For Personal Use Embezzlement?
Embezzlement is a possible accusation, and someone misusing a company credit card can potentially be brought up on charges if the offense is significant enough. Embezzlement occurs when someone who is trusted with control or management of another's property or funds inappropriately uses those funds for that person's personal benefit.
If an employee is entrusted with a business credit card, they are being trusted with company funds. If they were to intentionally misuse those funds for personal gain, it might be considered embezzlement. In cases like this, it generally would involve knowingly and purposely using the card for personal expenses while trying to pass them off as business needs. Someone who accidentally fills up their gas tank or grabs a few groceries on the wrong card is generally not considered to be embezzling funds.
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Understanding Why Keeping Personal & Business Expenses Separate Can Simplify Your Life
While we've established that putting personal expenses on a business credit card is not technically illegal, it likely steps on some of the terms outlined by the credit provider. Not only can this result in the closure of the account entirely, but it can also contribute to an exponentially more complicated accounting workload. There can even be tax and debt liability issues that ensure. In short, do everything you can to keep your personal spending off of any credit card belonging to your business.
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Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.