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This article was last updated Jun 26, 2020. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
If you’re a small business owner, chances are you are aware of the perks that come with carrying a business credit card. Along with offering points, miles or cash back on business-related expenses, many business credit cards provide helpful benefits, such as business management tools and monthly spending reports.
But while it can be useful to use your business credit card to charge company expenses, such as office supplies, flights for business travel and entertainment for clients, there are several transactions that should be avoided on a business card, such as personal purchases, cash advances and payroll.
It’s important to know that business cards come with less protections than personal cards. While the Credit CARD Act of 2009 protects consumers against excessive late fees and sudden interest rate increases, those rules don’t apply to business cards. For example, business cards don’t have to cap late fees and over-limit fees are allowed. And if your business is experiencing financial distress, a business card issuer can raise your card’s APR and lower your credit line without notice.
For those reasons and more, here are five transactions that you should avoid charging to your business credit card whenever possible:
1. Personal purchases
If you’ve ever been tempted to use your business credit card to charge personal items, you should think again.
In addition to the obvious ethical reasons if the card is linked to your employer and not your personal business, using your small business credit card for personal purchases can make filing taxes much more complicated and time consuming – since you’ll have to separate the two types of expenses at tax time.
Also know – if you ever need to apply for a small business loan, lenders will review the financial records for your company, which most likely will include previous credit card statements. And having personal expenses mixed in with business charges may reflect poorly on your company.
If you are an employee with a company credit card, be sure to familiarize yourself with your company’s policy on which charges are acceptable prior to using the credit card. For example, during a business trip, your company may allow you to use your card for meals, but not cocktails at the hotel bar.
2. Expensive purchases
Generally speaking, it’s not ideal to charge large purchases on your business credit card, since it can increase your credit utilization ratio and, therefore, lower your credit score.
Your credit utilization ratio, which is the amount of credit you use divided by the total amount of available credit you have, should be kept well below 30%. For example, if you have a credit card limit of $10,000, you should keep your card balance under $3,000.
That said, there are a couple of instances where it may be acceptable to make a high-cost purchase using your credit card: You want to earn rewards to use toward future business travel or operating costs and have a repayment plan already in place, or the card comes with a 0% intro APR.
The CitiBusiness®/ AAdvantage® Platinum Select® Mastercard®, for example, offers a generous sign-up bonus that can be redeemed for travel on American Airlines, American Eagle, oneworld airlines and partner airlines, as well as flight upgrades, vacations, Admirals Club membership, merchandise and charitable donations: Earn 65,000 American Airlines AAdvantage® bonus miles after spending $4,000 in purchases within the first 4 months of account opening.
Earn 65,000 American Airlines AAdvantage® bonus miles after spending $4,000 in purchases within the first 4 months of account opening.
Earn 2 AAdvantage® miles per $1 spent on eligible American Airlines® purchases
No foreign transaction fees and first check bag free on domestic itineraries
- Designed for businesses
- Earn 65,000 American Airlines AAdvantage® bonus miles after spending $4,000 in purchases within the first 4 months of account opening.
- First checked bag is free on domestic American Airlines itineraries to reduce travel costs and boost your bottom line.
- 25% savings on American Airlines inflight Wi-Fi when you use your card
- Enjoy preferred boarding on American Airlines flights
- Earn 2 AAdvantage® miles per $1 spent on eligible American Airlines purchases
- Earn 2 AAdvantage® miles per $1 spent on purchases at telecommunications merchants, cable and satellite providers, car rental merchants and at gas stations.
- Earn 1 AAdvantage® mile per $1 spent on other purchases
- No Foreign Transaction Fees
See additional details for CitiBusiness®/ AAdvantage® Platinum Select® Mastercard®
Just know, if you don’t pay your entire bill each month, you will be subject to interest charges at a rate of 15.99% - 24.99% (variable) APR.
Or, if you want to finance a large purchase and pay it off over time, you may be better off with a business credit card that lets you carry a balance interest-free for a specified period of time, like the American Express Blue Business Cash™ Card.
The American Express Blue Business Cash™ Card offers an intro APR of 0% on purchases for 12 months from date of account opening. After that, a regular APR of 13.24% - 19.24% variable applies.
To see rates & fees for American Express Blue Business Cash™ Card please click here.
3. Cash advances
If you’re in need of a quick influx of cash to help cover a business expense, such as office rent, a cash advance may seem like an easy solution. However, due to the high fees and APRs associated with cash advances, they can be an expensive option.
For example, the Ink Business Cash® Credit Card comes with an APR of 24.99% variable on cash advances, which starts accruing immediately.
The Ink Business Cash® Credit Card also charges a cash advance fee of either $15 or 5% of the amount of each transaction, whichever is greater.
If you must use your card for a cash advance, have a plan in place to repay the balance as soon as possible to avoid incurring hefty interest charges.
Read our Ink Business Cash® Credit Card review.
While it is possible to use a business credit card to pay employees via online accounting apps and management tools, it isn’t a good idea to do so because of the fees and interest charges you may incur for using those services.
For example, Plastiq is an online payment service that allows business owners to pay employees and freelancers via credit card – for a 2.5% fee per transaction. On top of that, you may be subject to interest charges from your credit card if you don’t pay your balance in full by the due date.
If you do find it necessary to use a credit card to pay employees, it may be a sign that your business isn’t doing well financially – in which case, you may want to consider a small business line of credit from a bank or credit union instead.
5. Legal expenses
While it’s perfectly acceptable to use your business credit card to pay for some legal expenses, such as consulting with an attorney or registering legal documents, it should not be used to pay off legal settlements. That type of charge can signal to the credit card company that your business is in distress and you may not be able to pay off your remaining credit card debt.
If you are being sued, it’s best to try to negotiate a payment plan with the other party, rather than charging the amount to your credit card.
What your business card should be used for
A business credit card can be a great resource when used correctly. That means avoiding the transactions mentioned above, as well as paying your bill on time and in full (whenever possible) each month. Instead, use your business credit card to cover the following expenses:
- Office supplies, such as desks, laptops and paper
- Business travel, including airfare, hotel stays and rental cars
- Entertainment, including company dinners and gifts for clients
Along with earning rewards on those purchases, you can establish a good credit history for your company – which will be helpful if you ever need a higher credit limit or future business loan.
The information related to the Ink Business Cash® Credit Card and American Express Blue Business Cash™ Card have been independently collected by CompareCards and have not been reviewed or provided by the issuer of this card prior to publication. Terms apply to American Express credit card offers. See americanexpress.com for more information.