Credit cards to cover business expenditure

Credit cards can be used to cover business expenditures, although care needs to be taken that this is a suitable form of borrowing and that personal spending is properly segregated from the business expenditure.

There are many small business credit cards now offered that not only lend to a small business owner, but also claim to be designed with his or her needs in mind. These cards come with a number of features which aren’t always available for standard credit card accounts, such as the ability to issue a large number of subsidiary cards for employee usage.

These business credit cards are often touted by banks as a means of borrowing that is flexible and unsecured. However, it can also be very expensive if used over the long term. Credit cards are handy for small, ongoing expenditures, such as covered employee expenses, a cash flow shortage, or a sudden, necessary purchase.

However, over the long term credit cards should not be used as a replacement for regular loans, as the interest charged is considerably higher. Business credit cards can also camouflage large or excessive outflows, making it difficult to ascertain the company’s true financial situation and hiding debt amongst the day-to-day spending.

Another problem with using business credit cards is that personal and business expenditures can become confused. This not only makes it harder to differentiate personal finances from business costs, but it also becomes harder to determine the proper tax deductions for interest and credit card fees and penalties.

One solution for that problem is to carry two separate credit cards, one for the business and one for personal usage. If so, the business credit card should be tied to the business rather than to the business owner, to minimise personal liability if the enterprise fails. This of course is easier for an incorporated business rather than a sole proprietorship, as many credit card companies require a personal guarantee and charge a higher rate of interest for these smaller and generally riskier businesses.