Should you use Business Credit or Personal Credit for your small business?

If you're starting a small business, you must decide whether to use personal or business credit. This is a significant decision that will have an impact on the viability of your small business. In this article, we'll look at the facts about both options so you can make the best decision for your business.

What is Personal Credit?

Personal credit or individual credit is a form of personal finance that refers to the ability of individuals to borrow money for short or long-term purposes. Personal credit is used by consumers for many purposes, including financing a new car or home, paying for medical expenses, or buying groceries. Personal credit can be extended by banks, retailers, and other financial institutions.

Personal credit is also known as an extension of credit, which is an agreement between two parties where one party extends money to another party in exchange for collateral that has value. The collateral can be anything of value, such as real estate, stocks, or bonds. The lender charges interest on the amount borrowed and if the borrower defaults on their payments the lender can repossess the collateral they gave up to secure the loan.

What is Business Credit?

A company's financial strength is measured by its business credit. A company can pay its bills and make payments on time. It could also be used to fund future operations and growth in some cases. Generally, business credit is a tool that allows you to expand your business. With good business credit, you can borrow money, buy inventory, invest in new equipment, or expand your operations.

Personal Credit vs Business Credit – Which should you use in your Business?

Pros of Using Personal Credit for your Business: If you're just getting started and don't have enough income or assets to qualify for business credit, using your credit card is a quick way to establish some history with the three major credit reporting bureaus — Experian, TransUnion, and Equifax — which will help them determine whether you're a good risk for future loans or lines of credit.

Using your card makes sense if you only need a few hundred dollars in inventory or supplies for your first few months in business. If you start with small purchases now, you'll have an easier time qualifying for better cards later — as long as you pay your bills on time every month. This is critical because late payments can have the greatest impact on your credit score of any factor!

A personal credit card can also be used for other things besides funding your business. You might use it as a backup in case your business goes under and you need money to live on while you look for another job. Or you may also use it as an emergency fund in case something unexpected happens with your business that requires an immediate influx of cash.

• Cons of Using Personal credit for your business:

Let’s talk about why using a personal credit card for your business might also not be such a great idea after all:

One thing about personal credit is a low spending limit. That is why it is important to use business credit to spend money for your business. This ensures that you'll have enough room to cover the expense in case there's an emergency or if something goes wrong with the payment system. If you don't have enough spending power, then it might not be possible for you to pay for all of the expenses at once.

There are also tax implications associated with using personal cards for business expenses. If you use one of these cards for personal expenses and then fail to report those purchases on your taxes, you could face some serious penalties from the IRS.

When using your card for business purposes, there's a chance that some fraudulent activity could occur if someone were able to get hold of your card number and PIN code. This can cause trouble for both yourself and your company as well as damage its reputation and image. A good way to prevent this from happening is by having several cards issued specifically for company use only so that each one has different numbers and PINs associated

• Pros of Using Business Credit:

Businesses should use business credit cards as often as possible because these cards offer many perks that personal credit cards do not offer at all or only partially offer (such as rewards programs). For example, some rewards programs give points back per dollar spent on travel expenses or even fuel purchases; others offer reward points that can be redeemed for cash back or even free flights or hotel stays. These types of rewards programs are not available on personal credit cards at all and can help save you a lot of money.

A business credit card can improve cash flow and help you manage expenses more efficiently. That may seem like an obvious benefit for any small business owner. But it’s especially true if your company is just starting out or if it doesn’t have enough cash flow to cover its expenses each month.

• Cons of Using a Business Credit:

The worst part about using a business credit card is that you will end up paying more in interest than you would have if you had used your credit card, which can severely reduce your profit margins if you are not careful.

If you want to help finance your business, you must pay off all of your bills on time each month to avoid incurring interest or late fees. This ensures that your money goes further into helping your company grow rather than paying off debt every month.

Another significant disadvantage of using a business credit card is the lack of flexibility in comparison to other types of financing available to small businesses today, such as factoring companies or invoice discounting services.

Can you put personal expenses on business credit cards?

There are some restrictions on using business credit cards to pay for personal expenses.

• The first requirement is that you have a business and have your company name on the card.

• The second requirement is that you be able to demonstrate a clear separation of personal and business expenses.

• Also, you'll need to keep meticulous records of how much you spent on each.

The problem with incorporating too much of your personal life into your professional life is that it can lead to confusion and make managing your finances more difficult. It may make it difficult for the credit card company to distinguish between business and personal purchases, leaving you liable for all charges.

To get the most out of your business credit card, use it exclusively for business purposes whenever possible.