Why You Should Use a Separate Credit Card for Your Small Business

If you run a small business, or plan to start a small business, the same question always arises: should you use your personal credit card for business purchases or obtain a separate credit card for your small business?

The answer depends on what type of business you plan to operate. If it is a sole proprietorship, which most small businesses are, you can use personal credit cards for business purchases. However, you must remember that the financial results of your small business must be reported separately from your personal income. Therefore, it is always wiser to obtain a separate card for your business in order to separate purchases and keep track of expenses.

A personal credit card for your small business

As mentioned, most small business are operated as a sole proprietorship, meaning your business has a single owner – you. Therefore, you can easily apply for a credit card with your name that you can use solely for your small business purchases. This method allows you to use a credit card for your personal purchases, as well as a separate card for all your business expenses. Using a separate card will easily provide you with a detailed list of purchases that you can use for your expense record keeping.

Time for a corporate card?

If your small business is not a sole proprietorship, but a partnership or another form such as a Limited Liability Company (LLC), you may be in need of a corporate card. With one of these types of business structures, you are likely to have obtained a Tax Identification Number, also known as an Employer ID Number (EIN) from the U.S. government.

With your business EIN, you can apply for a corporate credit card. But be aware that a new small business with no credit history has the same problems that an individual consumer has with obtaining credit for the first time. You may need to use your personal social security number to aid your business in getting started with obtaining and building credit.

Benefits of a separate corporate card

What are some of the advantages of a small business credit card? Establishing small business credit can help your business grow by:

• Obtaining real estate in the small business name. At some point, your business may grow to the point where you need to purchase land and/or real estate. Having good business credit will help with a commercial mortgage.
• Lease or buy automobiles for your business.
• Lease equipment for your business. If you need to lease large equipment, creditors will want to know that your business is credit worthy.
• Obtain larger lines of credit for your small business needs.
• Lessen your personal liability on business transactions. This can be very important when keeping your personal purchases separate from your business purchases. Having a separate business card prevents creditors from collecting from your personal assets should the business fail to meet its credit obligations.

If you have established a small business or are planning to start one, create a strategy to separate business transactions from your personal ones, and start growing your business’ own credit history. Having a separate card can be beneficial for both these needs.

Write to Grace Carter at grace@creditdonkey.com