There are lots of amazing business credit cards out there nowadays, with huge welcome offers, great return on spending, and valuable perks. The awesome thing is that you’re eligible for business credit cards even if you have a small side business.
One common question I get from readers is whether you can use business credit cards for personal spending. It’s something that some people wonder in situations where they have to reach a big minimum spending requirement, for example. I wanted to address that in a bit more detail in this post.
In this post:
You’re not supposed to use business cards for personal spending
Let me cut to the chase. Virtually all business credit cards have rules against using the cards for personal use. When you apply for a business credit card, you’ll see that all issuers have terms you have to agree to about how you’ll use the card. For example, looking at the application for a Capital One business card, you’ll see the following verbiage:
“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.”
You’ll find similar language with all issuers. Now, to be perfectly clear, there’s nothing illegal about using a business credit card for personal expenses. Rather it simply violates the agreement you have with a credit card company.
Why would card issuers have this policy? Well, generally speaking business cards have higher merchant fees than personal cards, and presumably that’s at least partly because credit card issuers have been able to sell merchants on the concept that those with business cards are more likely to spend more. Requiring that business cards only be used for business purchases ensures that the spirit of that is maintained.
In the interest of being thorough, I should mention that the inverse is allowed — you can use a personal credit card for business expenses. It’s common for people to use personal cards for business expenses and then they just have to get reimbursed, so if you’re fine with that, then this is a perfectly legitimate practice.
What happens if you use a business card for personal spending?
For a vast majority of purchases, a card issuer would have no clue whether you’re making personal or business purchases. After all, expenses for meals, flights, hotels, etc., could be for business or personal use. I haven’t seen many reports of card issuers requesting proof of the reason for a purchase.
Now, I assume if you claim to have a property management business and you’re spending $200K per year on your business card on grocery store purchases, maybe some red flags will be raised. But it’s honestly rare to hear of situations where card issuers question whether a purchase is for business reasons or not.
One situation where you’ll want to be especially careful with the card you use is when it comes to insurance and other coverage perks. For example, if your card has cell phone protection, rental car coverage, travel protection, etc., you’ll want to be sure you’re using the correct type of card.
If you use a business card with rental car coverage to rent a car and then have an accident, you’ll be asked to confirm with your paperwork that your rental was indeed for business purposes. When you’re signing an insurance document, you’re certainly not going to want to lie.
Bottom line
Across the board, credit card issuers have rules against using business credit cards for personal spending. You agree to this when you apply for a card. However, in practice there’s not typically much ongoing enforcement of this, since a card issuer doesn’t actually know what the purpose of your purchases is.
You’ll want to be especially careful with using the right cards in situations where you might be needing an insurance or protection benefit, whether it’s rental car coverage, cell phone protection, delayed travel coverage, etc.
What’s your take on using business credit cards for personal spending?
I think you missed an important point. It should be a business. If you did not register a company for your business, you generally will not qualify for a business credit card. The card will have your name and the company's name on it. The interesting thing that you did not point out is generally the benefits are personally awarded. For example nights at Marriott would be on your personal account. Chase points can be...
I think you missed an important point. It should be a business. If you did not register a company for your business, you generally will not qualify for a business credit card. The card will have your name and the company's name on it. The interesting thing that you did not point out is generally the benefits are personally awarded. For example nights at Marriott would be on your personal account. Chase points can be pushed or merged with your personal card rewards, etc.
If you do, better pray to not get audited.
Once when I used my business card to pay for my home gas bill (to meet the spending requirements), I got a note from the credit card company saying that I was not supposed to do that.
While what you did goes against all the warning comments. Nor should you continue this practice.
Depending on your 'business'. If your home is your office then, paying your home gas bill shouldn't get you in trouble with the credit card company.
If your company manages real estate, your particular home could be managed by your company. Therefore, it's not uncommon that your company pays for utilities. It's also not illegal to have one LLC...
While what you did goes against all the warning comments. Nor should you continue this practice.
Depending on your 'business'. If your home is your office then, paying your home gas bill shouldn't get you in trouble with the credit card company.
If your company manages real estate, your particular home could be managed by your company. Therefore, it's not uncommon that your company pays for utilities. It's also not illegal to have one LLC manages only a single property as a secondary line of business while primarily doing something else.
On the other hand even if you are worry about your personal assets, the government can seize your assets with so many excuse. The burden of proof doesn't protect you from seize first, guilty or not.
I have some cards under my corporation's name. My attorney warned me not to use them for personal expenses because someone suing me could go past the corporation & go after personal assets. He also said I should pay the corporate credit cards with the corporate bank account.
Your attorney is absolutely correct.
But many readers here should have much less concern if you're a sole-proprietor.
Not that I suggest anyone take that risk. Nor is this a legal advise.
Don't apply for a business card unless it's actually for business.
If you co-mingle your personal and business finances, a court may decide that you no longer have your personal assets protected from business debt collection and lawsuits. It's an unlikely scenario, but I wouldn't do it to get a few extra miles.
Court must also prove the intent and several things too. Then there is jurisdictions and how courts view these cases. By all means not a simple if you co-mingle you're likely guilty.
Like in @Lucky case of "property management business and you’re spending $200K per year on your business card on grocery store purchases". Most people, even on personal level, wouldn't spend 200K in grocery. But people who did those probably have some net positive...
Court must also prove the intent and several things too. Then there is jurisdictions and how courts view these cases. By all means not a simple if you co-mingle you're likely guilty.
Like in @Lucky case of "property management business and you’re spending $200K per year on your business card on grocery store purchases". Most people, even on personal level, wouldn't spend 200K in grocery. But people who did those probably have some net positive return. Same argument could be said for the business doing 'investments' for the same returns. Court have to prove misuse.
But it's also actually a more common scenario than you think, so anyone should still think twice.
The property management + grocery thing is a weird example. There are plenty of vacation rentals that offer a grocery stocking service; I could easily see a property management company that does that having very substantial grocery spend.
Sure but banks do not waste their resources on such frivolous investigations unless the card members give banks a legit reason to pursue them. You can also ask why the majority of law makers are crooks, liars, scammers, and alike ---those who we vote in, grant them power and resources to write laws with no recourse to fire them until the next election. The same law makers who have zero background in areas they write...
Sure but banks do not waste their resources on such frivolous investigations unless the card members give banks a legit reason to pursue them. You can also ask why the majority of law makers are crooks, liars, scammers, and alike ---those who we vote in, grant them power and resources to write laws with no recourse to fire them until the next election. The same law makers who have zero background in areas they write and pass laws. The honor system does not exist in this country.
You say its not illegal to use a business card for personal expenses, but if you sign an application saying that you will only use the card for business expenses while having no intentions to actually do that, isn't that bank fraud?