Using a Business Credit Card for Personal Expenses: What’s the Risk?

From losing consumer protections to complicating your recordkeeping, there are downsides to using a business credit card for personal expenditures.
Last updated Nov 19, 2020 | By Liz Alterman
Family eating at a restaurant together

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Business credit cards offer a number of benefits. Because they’re often easier to acquire than a traditional loan or credit line, they serve as ready cash, allowing you to make business-related purchases simply by entering the right digits online or by handing over your card and signing your name.

Business credit cards also typically feature a higher spending limit than your personal cards might. Some offer other perks, such as primary rental car insurance, no foreign transaction fees, airline benefits, and access to airport lounges, making them that much more appealing. But even with those advantages, using a business card to pay for personal expenses can pose potential risks to you and your business.

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What do credit card issuers say about using a business card for personal expenses?

Because of the multiple benefits associated with some of the best business credit cards, it may be tempting to use one for personal expenses. But before you charge your groceries and monthly gym membership fees to that account, you may be wondering: Is it illegal to use a business credit card for personal use?

Mike Pearson, credit expert and founder of Credit Takeoff, explains that using your business credit card for personal use is likely to be in violation of your cardholder agreement.

“Most business credit card issuers will make you sign an agreement where you agree not to use your business card for personal expenses,” he says. “And, if you violate the terms of your agreement, then they have the leverage to cancel your card.”

Take, for example, the terms and conditions of the American Express Business Gold Card, which say, “By submitting this application, you, as an individual and the Authorizing Officer of the Company ... are representing that all card(s) issued on the account will only be used for commercial or business purposes.”

Similarly, the Capital One Spark Cash for Business card requires the signer to “acknowledge and agree that all cards and convenience checks will be used solely for business or commercial purposes and not for personal, family or household purposes.”

However, Pearson notes that in reality, it’s highly unlikely that your credit card issuer would ever cancel your card because of this practice. “They don't have the capacity or the incentive to analyze your transactions to that degree,” he notes. “So while this is a possibility, it is a very low-risk one.”

5 possible consequences of charging personal costs to a business card

While it’s unlikely that a credit card issuer will terminate your account, you may see other consequences if you use a business card to pay for personal expenses.

1. You may not be entitled to the same protections you get with a personal card

When you use a personal credit card, you’re afforded certain protections by federal law. But not all of those safeguards apply to credit cards issued for business, Florida-based consumer protection attorney Donald E. Petersen points out.

Petersen outlines the protections consumers who use business credit cards lose:

  • You may have less time to dispute fraudulent charges if your card is lost or stolen.
  • You may have a harder time disputing a charge in cases where a charge was incorrect or where goods or services weren’t received.
  • You may lose protections from debt collectors, who could harass business-card debtors by calling at odd hours and calling frequently, along with other inconvenient collection practices.

Additionally, issuers who are required to give personal cardholders notice before increasing interest rates or upping late charges don’t have to adhere to the same practices when it comes to business credit cards.

However, Petersen adds that some credit card issuers do offer more generous protections to consumers who opt for their business cards. So when you’re shopping around for a business credit card, be sure to read the pricing and terms carefully to ensure you’re protected.

2. It may be harder to do your taxes

Priyanka Prakash, lending and credit expert at Fundera, says another dangerous consequence of charging personal expenses is the difficulty of separating business from personal costs when tax time rolls around.

“For example, let's say you charge an expensive dinner with your family to your business credit card, but you also dine with clients at the same restaurant,” she says. “When you're balancing your books and preparing for taxes, you might not be able to recall which dinners were personal and which were for business."

“That means you might accidentally claim business tax deductions for personal dinners, which is illegal,” she adds. “If the IRS audits you, you could end up paying hefty fines and back taxes. That's one reason you should keep business and personal expenses separate.”

3. It may be more difficult to track your company’s financial health

Melanie Hopkins, founder of Finance Friend, a business management and financial consulting firm, says using business and personal credit cards interchangeably can be “pretty bad depending on the accuracy of your record-keeping.”

“The biggest disadvantage that I see with my clients is lack of transparency in the financial health of their business,” Hopkins notes. “How can you know if your business is running profitably if your personal groceries, haircuts, clothing purchases, etc. are being run through the business? It makes it much for difficult to manage cash flow, calculate cash runway, etc.”

If you’re applying for a business loan, for example, a lender will look at your personal and business credit reports. You’ll also have to produce bank statements, tax returns, profit and loss statements, and other important documentation. Having a track record of commingling funds or sloppy recordkeeping could hurt your chances of acquiring a loan. And if you get one, it may be at a higher interest rate.

“Charging personal expenses on your business credit card doesn't seem like a big deal, but it harms the overall health of your business,” says Michael Eckstein, enrolled agent and owner of Eckstein Advisory and Eckstein Tax Services. “Even if you try filtering them out, your personal expenses can skew your business reports and make it very difficult to see how well (or poorly) your business is doing.”

4. You could be held personally responsible for your company’s problems

One of the benefits of setting up your business as an LLC (limited liability company) or corporation is that your personal assets are safe should a lawsuit be filed against your business, says Greg Mahnken, credit industry analyst at Credit Card Insider.

“Co-mingling your personal and business funds presents a risk because it can allow courts to pierce the corporate veil and hold you personally liable for your business’ liabilities,” he explains. If your company lands in legal or financial trouble, your assets could be on the line.

5. Your personal credit could be impacted

In most cases, simply charging personal items to a business card won't hurt your credit, states Prakash.

“Most business card issuers only report payment activity to the personal credit bureaus if you become delinquent on payments,” says Prakash. “So if you mix personal and business expenses but pay your bill on time, you won't see any credit impact. That said, charging costly personal items to a business card could run you up against your credit limit sooner and make it harder to pay your balance on time. That could hurt your personal and business credit.”

Unless your company has corporate cards with millions of dollars in reserve, your business card will very likely require a personal guarantee, says Mahnken.

“You're almost certainly legally liable for your business credit card's balance, so charging large personal purchases to a business credit card poses the same threat as charging large business expenses,” he says. “If you can't pay off your balance, your personal credit will likely suffer.”

FAQs

Can my business pay for personal expenses?

Whether or not your business can pay for personal expenses depends on your situation. If you are a sole proprietor and there is no legal separation between you and your business, you could pay for personal expenses with company funds. However, money used to pay personal expenses should be included in your business income when reported to the IRS and you cannot deduct the personal expenses on your taxes.

If you have formed a partnership or corporation, you should avoid personal expenditures with business funds. Using money from the business to pay for your expenses could be considered a breach of your fiduciary duty to the company and you could face legal action if you have co-owners who are affected. You could also jeopardize liability protections that exist when your business is operating as a separate legal entity.

What’s the difference between a business credit card and personal?

Business credit cards are intended for people with business income. This could include income from a side gig or from a business run as a sole proprietorship as well as corporations, LLCs or other business entities.

Personal credit cards are meant for individuals, not for businesses. It's common for business credit cards to offer different rewards and perks that cater to business customers, such as bonus rewards for purchasing advertising or for shipping expenses.

Does a business credit card affect your personal credit score?

In most cases, your personal credit is checked when you get a business card and creditors consider you personally liable for debts incurred by the business.

This means you could get an inquiry on your credit report when you apply for a business card and delinquencies will be reported on your personal credit history if you don't pay your card on time. In some cases, your credit utilization on your business card is also reported on your personal credit history — however, policies vary depending on the card issuer.

What are the benefits of having a business credit card?

Business credit cards can sometimes come with generous sign-up bonuses or more advantageous rewards programs that you can take advantage of. You can also use a business card to easily keep company expenses separate from personal expenses. And, depending on the card issuer, your credit utilization on your business card may not affect your personal credit score.

Is a business credit card a good idea?

Applying for a business credit card can be a good idea if you run a business and want to keep expenses separate or if you want the rewards and cardholder perks the business card is offering you.

It's important, however, to be honest about the extent of your business activities when applying. Although you can often qualify for a business card even when you do only a small amount of business or when your business has limited or no profits, you don't want to exaggerate the extent of the business you do in order to get approved for a card.


Is it illegal to use a business credit card for personal use?

While it isn’t illegal to use a business credit card for personal expenditures, it’s probably not advisable to consistently do so. Though a business credit card has benefits, understand the risks involved before using one for personal expenses.

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