Credit Card: Use Business or Personal? 

by Jerry Ernst

When a small business needs fast money, it’s easy to whip out a credit card to make the purchase. Every entrepreneur relies on them. Why not, when they’re convenient and easy to manage?

But the line between personal and business credit can be blurry. When is it appropriate to open a business credit card, versus continuing to use personal cards? These milestones signify it’s time.

Borrowing needs exceed personal credit limitations. Running a business can be expensive, especially when equipment or inventory is involved, and a thriving business often requires more funding than personal credit allows. Business credit cards can be the ideal solution, since they offer higher credit limits compared to a personal card and they don’t follow the same debt-to-income ratio.

Employees need their own credit cards. Once a small business grows enough to support employees, providing them a credit card to manage their purchases can be important for certain job functions. Sharing a personal card can easily result in declined purchases as a result of today’s stringent fraud prevention measures and it puts the cardholder’s personal credit at the mercy of the employee. If a business needs more than one credit card, opening a business account makes sense. It allows employee spending limits to be managed individually and opening or closing cards without impacting other users.

Bigger funding needs are looming in the near future. When a business recognizes it may need conventional bank financing to purchase capital equipment or handle expanding operations, having a solid business credit history already established is essential. It opens the door to bigger funding opportunities than a personal credit history can accommodate. It’s not enough for the owner to have a strong personal credit history — a banker wants to see signs that the business itself is creditworthy. Long before a business plans to apply for a loan, it’s smart to begin building up a business credit history by opening a credit card in the name of the business. It also demonstrates creditworthiness and stability to the lender.

On a final note, there are two things to keep in mind when considering a business credit card. Most require a personal guarantee, making the business owner responsible for the company’s debt should it miss payments. Also, business credit cards don’t enjoy the same consumer protection benefits as a personal card. It’s important to read the fine print.

Jerry Ernst is president and CEO of Horizon Community Bank, one of the largest locally owned and operated commercial bank charters in Arizona.


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