Conventional advice is to put business purchases onto a business credit card. I myself have done this for many years. However, we might want to explore the ‘why’ of that, and perhaps make some adjustments.
The logic behind using a business credit card is that it helps in two ways:
- Your expenses are neat, and reconciling your monthly expenditure is simplified between the credit card account and the business checking account.
- You create proof of a delineation between personal and business expenses.
There are two factors at play here. The first is accounting – keeping things simple and trackable helps with the administrative task of tracking your business expenses. The second is creditor protection, helping build a case for the corporate veil, and showing how your business really is a distinct entity from yourself. The latter point is one that would be challenged in litigation, and a point in your favor, though not one with any firm guarantees.
It seems that the common logic makes sense – use a business card for admin, and for protection. But what is the real difference between a business credit card and a personal one? While the business card may be attached to an EIN, it is backed with an SSN, and while it may have a business name, it also has a personal name. Further to which, many businesses with a business card are pass through entities (LLC or S Corp elections) rather than stand alone entities (C Corps). So when all is said and done, the value of a business credit card to prove a distinct business for creditor action is quite small.
However, the argument of blended or co-mingled business and personal funds is a relevant one.
Enter a Surrogate Business Card
For this concept to have any true value we need to look at a very specific use case: the business is focused on online arbitrage, and the card offers 3x on online purchases. Using this card for your business would be tremendously valuable.
In order to achieve this, I would try to mimic the positives associated with conventional wisdom above:
- Link the card to business checking for payment in full each month.
- No personal expenses to go on the card.
I think that doing these would create a defendable argument that the card was used for business and have similar gravitas to the creditor protection of a small business card used correctly, and better than a small business card that was used for both business and personal expenses. But I’m not a lawyer, so take it for what it is worth.
In addition to electing a better points earning strategy by selecting the best card for the job, you also bring in perks that come with Personal cards that might be missing from Business cards – for example, some personal cards have a better level of purchase protection, which could come in handy when it comes to returns/damages/loss for the business.
The advice to use a business card is sound, but the reasons for the advice tend to stem from areas that might be reproducible via a personal card, if treated with the same care and attention to detail as is required from properly utilizing a business card. Or it might not, and you may have all of your personal possessions taken from you, and be thrown into a jail to rot, which should serve as a disclaimer.