Business versus consumer credit cards – does it matter?


Many startups can get away with using their personal credit card in the short term, but long-term use could mean havoc for your personal credit history if a business is not successful. It can also cause major headaches come tax time.


The appeal of throwing startup expenses onto personal credit may seem obvious. It could mean instant access to funds and you don’t need to apply for traditional financing.


And of course the similarities between personal credit cards and business credit cards are many – including the ability to buy things both offline and online, paying for goods over the phone, as well as withdrawing money from ATMs.


However, co-founder of credit card comparison site Fred Schebesta notes that the key difference between the two cards are that business cards are issued to a company, not an individual, therefore the company is responsible for any accrued debt, rather than the individual.


Schebesta says the ability to differentiate between personal expenses and company expenses will become harder if a startup uses the same account for both. You’ll have to backtrack each month and review what expenses were corporate and which were your own.


“Even if you allocate a certain amount of credit to business and personal expenses, there’s always the risk you’ll eat into your personal reserves and be left in a much riskier credit situation,” Schebesta says.


Another downfall is the credit score will not only reflect your own, but also your company’s if you find yourself in murky water.


Business credit cards may offer advantages that personal credit cards may not offer, such as a number of cards being issued to the one account, Schebesta advises. Different restrictions could potentially be placed on each card; meaning junior employees won’t have the same spending power as senior staff, for example.


The comparison business also notes that startups with business credit cards may also be eligible for tax deductions on spending, and receive benefits only available to those with an ABN.


Some cards also offer access to a rewards program, including frequent flyer points and gift cards, but Phillip Kemp, executive director of Business Foundations Inc. warns some reward programs have hidden fees.


“These days credit cards have loyalty point programs and the like, but these also come at a cost, which is built into the fees and charges for the card,” Kemp says.


In addition to rewards costs, Schebesta recommends startups consider the other costs of maintaining the account. Costs may include the annual fee to be paid each year, frequent flyer point fees, added charges per cardholder, minimum monthly repayment requirements and other repayment flexibilities.


Schebesta also encourages startups to find out what reporting facilities the card offers, such as itemised monthly reports and expenditure reports, as well as knowing what insurance options are available.


“A business credit card can offer some perks such as insurances, frequent flyer points and itemised expenditure reports that startups may otherwise have put extra effort and money into, to get the same returns,” Schebesta says.


It’s important to note that business credit cards sometimes have a higher annual fee than other credit cards, which should always be considered when assessing your business situation.


“As with any credit card, you need to review your spending and repayment habits and schedules, then look at the expenses of the card alongside the benefits it can provide your team,” Schebesta says.


Kemp recommends startups launch with a straightforward account and reevaluate their needs as they grow.


“When starting out, choose a basic credit card with the lowest fees and then as the business grows and is generating regular, consistent income, change the card to something that can accumulate points from your everyday business transactions,” Kemp says.


Even though your startup team may only be a handful of people, the benefits of having a business credit card sometimes outweigh the seeming simplicity of using your own personal account.


Written by: Nicola Trotman


This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ).


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