If you are like many business owners just getting started with your business, you probably use your personal credit card to pay for business expenses.
Most of us don’t even think twice about it. We just pull out that personal card and start paying business expenses. No fuss, no muss.
In the early days that may be convenient. However, after your business gets legs and starts to grow, trust me, you will begin to see the disadvantages of mingling personal credit and business credit.
For one thing, you may find that if you have a lot of business expenses on your card, you will not have credit available for important personal needs, such as that long-awaited family vacation.
Or you may find your credit rating is adversely affected by nearing your credit limit on a card. Having a separate business credit card not only gives you more combined personal and business credit, but it may keep you from maxing out on any given card. And that may help preserve your personal credit rating in the process. And there are several other good reasons to have a separate business credit card.
Even if you do not like to pay on credit, in today’s world it’s difficult, if not impossible, to conduct transactions such as renting a car or reserving a hotel room without a credit card. A credit card is virtually a business necessity.
I outline the key reasons for having a separate business credit card and how to pick one, in my article about Choosing — and Using — a Business Credit Card, over at the Online Merchant Network.
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I am disturbed and disappointed that the NFIB has chosen to endorse the use of credit cards by small business people as Anita Campbell writes in this column. The dumb use of credit cards is the single biggest reason why American families and American small business will always struggle with debt. Nothing works like cash. As a small businessman myself, I do not use personal or company credit cards. If I can’t pay cash then I don’t need it. Credit cards, the resulting high cost of interest, and the harassing phone calls when you are late will add to the anxiety level of small business people and adversely affect the ability to function as a business and untimately will negatively affect the family. This is bad advice and I recommend all small business to reject Anita Campbell’s advice and run away from credit cards.
Hi Steve, thanks for commenting. One point of clarification: the NFIB did not have anything to do with the article I wrote about.
NFIB reprinted your article under their masthead and by doing so gave their tacit approval to the content. Had I had editorial review, with my first hand experience of credit card hell, I would have rejected the article as being bad advice for NFIB members and readers.
Also Anita, your point about it being virtually impossible to rent a car or hotel room without a credit card is bunk. Debit cards work just as well and you have to have the money in your account. You won’t spend what you don’t have.
Although I can appreciate Steve’s comments and his first hand experiences, I have had some hassles regarding credit vs. debit myself. My local gas station puts a $50 “hold” on my checking account when I use my debit card to purchase fuel, regardless of the amount of the transaction. To avoid this hassle, I use credit at the pump now. My transaction may only be $20, but I cannot access $50 until this transaction clears, which is usually a 3 day time frame for me. I find this type of action aggravating and invasive.
As well, even though many car rental companies are accepting debit cards, it seems that they are now performing similar actions when debit cards are used. They are now placing “holds” on money in your checking account. A topic which is discussed here: <a href=”http://www.bankrate.com/brm/news/cc/20061122_debit_card_car_rental_a1.asp” rel=”nofollow”>Don’t Use Debit Card For Car Rental.</a>
This article also lists the debit card rules for several of the top rental car agencies. As well, even though some allow debit cards for the rental, several require that a major credit card be presented upon pickup – and others are not accepting debit cards, period, at certain locations. My personal opinon – credit cards require less hassle and debit transaction “holds” can seem invasive.
My beef about the article was a recommendation that small businesses need help on how to choose the right credit card. I contend that small businesses should avoid the use of any credit card like the plague and should choose not to use one at all rather than which one. The author also said that renting a car or reserving a hotel room is virtually impossible without a credit card. Enterprise car rental takes debit cards-I only rent from them- and I have never been turned down by any hotel or motel.
How you pay for your gas is up to you Chris. I pay cash and no gas station has ever put a lock on my account because of it. Sometimes I even prepay with cash and I always pay the amount I expect to.
My whole point was to point out that small businesses who use credit cards as a financing or cash flow tool will always get burned. Credit card use is dangerous for everyone, especially small business. It is not good advice for anyone.
Again, I can appreciate your comments, Steve. However, I don’t think it’s fair to assume that everyone uses, or will use, their cards irresponsibly.
Naturally, if you are using your card excessively and irresponsibly, trouble may ensue. And although some may not consider it wise to use them as a source of sole funding, if you can afford the payments and it’s use is within your personal range, they can be a real asset. Which is why it’s important to discover the card that’s right for you and your business needs.
I do believe that if your cards are used responsibly, they can be a wonderful asset when conducting your business and I know many whom are doing just that – and responsibly so.
And as for me, I could choose to pay cash for my gasoline, however, the convenience of paying via credit card at the pump and then moving right along without having to enter the station and wait in line, is a convenience that I have come to appreciate. Then, at the end of the month, I pay my bill in full. Responsible use, convenience and assistance.
As well, I believe the post above is referring to those whom are already using credit cards for business, but are using personal cards to do so. In that case, I agree wholly with the post in that – if you are already tapping into credit for business, it’s much wiser to seperate the two rather than mix personal and business expenses. And I would agree with that.
business credit cards
I feel it is the excellent article. Even I have both the expenses that is personal as well as business expenses and I use the same credit card for both the purpose. It is difficult for me to identify the personal expenses with the business. I think I shall maintain the separate credit cards.
We are entering our 27th year of business and have used the same (personal) credit card for about 15 years. We have absolutely no problem separating the personal from the business expenses. You must be scrupulous about saving receipts and noting the personal versus business expenses. Documentation is essential. We have been audited only once by the IRS and there were absolutely no problems with our record keeping. We have always paid our credit card in full every month. It is a convenience that has worked well for us. It may not work for every one. In the early years of business, we would not have even considered using a credit card. It was cash or business check only for many years. It was only after we were an established business, with a bank line of credit, that we turned to the conveniece of one credit card. We have an excellent credit score. Also, the credit card rebates are nice!!
Business credit cards
Hey…Yes…..Business credit cards are some of the most popular. With more and more companies needing credit cards for their day to day operation, they are turning to credit cards that cater specifically to businesses. Business credit cards are perfect for the small or large business owner. They are a great way to get business discounts and deals
Well, it’s depends some people start business with credit; otherwise, they will never have a business. Credit is very good thing to have, but use it wisely.
Aika - Business Credit Card
Yes, proper usage of credit cards puts you away from trouble. I use business credit card for my business and it’s only for emergency purchases. One thing I like about it is, it’s separates my personal expenses from my business expenses.
Very insightful article Anita, thanks!
Aika – Business Credit Card Site