Using Your Personal Credit Cards To Pay Your Business Expenses? Stop!

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Are you paying your business expenses with your personal credit card? Amanda Webster, the COO of Fund & Grow, which has helped over 30,000 companies secure business credit totaling over $1.8 billion, notes that about 80 percent of business owners fall into this trap.

If you’re ready to separate your business and personal finances and fully utilize your EIN, Webster outlines the steps to take to achieve this goal. 

If you haven’t dumped your Schedule C, it’s time to get your own EIN (Employer Identification Number)

When I was living in LA and filing a Schedule C for my business expenses, I went through four detailed audits in the space of six years. The reason? The IRS wants a strict division between your business and your personal expenses. Establishing an LLC or an S-Corp with your own EIN simplifies this issue. More importantly, it opens the door to obtaining business credit. 

The difference between personal and business credit (business credit cards) 

Webster and I recently discussed how underutilized business credit is and how you can build business credit using your good personal credit scores.

Obtaining personal credit and business loans can be extremely challenging for real estate professionals because they’re considered to be higher-risk borrowers. The best way to overcome this challenge is with business credit. 

“If you apply for a business loan, you must provide financial statements as well as having a seasoned business with provable business showing $40,000-$50,000 per month in revenue from verifiable sources. I can’t tell you how many people have really healthy Airbnb-style businesses, and they’re still getting denied business loans because the lenders see those deposits as being risky,” Webster said.

“With business credit, you don’t need any of that because your nice, clean personal credit history can be leveraged to obtain business credit, with no financial statements or gross receipts.” 

2 reasons to switch from personal to business credit

• Webster explained that business credit limits are usually higher because there is revenue tied to it.
• The second reason is access to capital. According to SCORE, 82 percent of small businesses fail due to cash flow problems. 

“Although cash may be king, my philosophy is credit is Queen. It’s the counterpart to cash, and you need both. If you’re able to keep cash in the bank and use other people’s business credit to fund things, then you become much more bankable and your financial statements look healthier to everyone,” Webster said.   

“Saving your cash flow in your bank account to reinvest in other things is the safest way to keep your business healthy. Building a healthy business credit profile requires work — you need to have a credit score in both the personal and business world.” 

Business credit is an ideal match for real estate investors

Webster explained how Fund & Grow takes their clients through the process of obtaining business credit. 

“The beautiful thing about business credit is that it is unsecured, it is revolving, and it’s a great fit when you’re doing deal after deal after deal,” Webster said. 

Why business credit is not a do-it-yourself process

There are two challenges in obtaining business credit that may be hard to navigate by yourself, Webster said.  

The first challenge is that there are hundreds of programs out there, but how can you identify them? You could certainly ask ChatGPT to pull up the best-ranked business card programs with the best benefits and start there. 

The second issue is that approval decisions are made by an algorithm. Webster gave an example where they have seen applications denied because someone left the PO Box number off their application. 

One way business credit differs from personal credit is that you can call the underwriters and advocate for yourself. This can include asking about why you were denied or received such a low limit. 

Business credit vs. a bank line of credit

Unlike business credit, which is revolving, when you take out a business term loan from a bank it’s only good for two or three years. You’re then forced to reapply and to jump through all the hoops again of obtaining a new loan. 

“You don’t have to do any of that with business credit since it’s revolving. If you treat it correctly, you’re going to continue to build and build, and have more access, and eventually get to the stage where you can have nonrecourse commercial credit,” Webster said. 

Major benefits of using business credit include points, rewards, cashback and other benefits. These can be huge. Also, you’re only paying back what you borrowed. In contrast, with many business loans, you receive the money in a lump sum and then pay interest on the entire amount. Business lines also don’t have any perks. 

Up to $250K in business credit at 0%

Webster explained hundreds of business cards have an introductory rate of 0 percent. The 0 percent introductory rate typically runs between 12-22 months.  

“You’re aggressively using it all the way up to its limit and then aggressively paying it off, but it’s during the zero percent period that you can build it up. Once your zero introductory interest rate is gone, you need to follow a plan to pay it off.”   

An important philosophy

When it comes to business or personal credit, Webster said she has the same philosophy for both: 

“I don’t use my personal debit card to purchase anything because it’s tied to my cash. I feel the same in business. Your business bank account card shouldn’t be used for anything because it is tied to your operating cash,” Webster said.

“Instead, use your business lines to pay for purchases because you’re earning points, and you have more fraud protection on it. Again, it’s important to build a plan where you use this credit for short-term holding once the 0 percent rate is gone.” 

How real estate professionals can use business credit

Webster said real estate clients use their business credit in the following ways: 

• They use their business credit to close transactions, often covering closing costs or other expenses. Generally, it’s easier to get a commercial mortgage once they own the property and then refinance the commercial mortgage before it comes due.
• If it’s a fix-and-flip or a buy-and-hold, they may use their business credit to purchase the property and then pay it off in a reasonable amount of time. “If you’re in that world, there’s always a cost to capital,” Webster said. 
• If they have already done some properties in the past and have the money to pay the cost of the property, they often use their business credit and/or “vendor lines,” to pay for their rehab. Some even use it to cover the cost of staging.  

Webster reiterated, “Unlike your personal credit cards that ding you when you use up all your credit and that cause your credit score to tank, your business cards can be used up to their limit, and you won’t get dinged.” 

Interest rates

Business card rates, like personal cards, are very volatile. The range of credit can be from 9 percent up to 29 percent. This is dependent upon your profile. Webster described the steps she follows to assess each borrower’s individual situation. 

• Review your existing credit because, even though it’s not going to show on your business credit scores, it will come into play in terms of establishing your business credit. 
• Analyze how your business entity is set up, how it’s reporting, and make sure that everything lines up. Credit gets denied for stupid reasons — for example, having a missing suite number on your business address. 
• Review your credit application to make sure everything is complete. If you don’t check a required box, the computer just denies you credit and moves on.
• Look at what types of programs and offers make the most sense for you. For example, do you travel a lot and want airline miles?

Additional advice

Don’t cancel cards you’re not using 

Webster highly recommends that both on the business and the personal side, don’t cancel that card or just stop using it because of all the work you did to get it. If you close that card with the big limit, you’re losing all that credit history, which is a huge component of your credit score. Instead, use it once a month for gas or some other item. 

You can reapply for other 0% introductory rate cards

Once your zero-interest rate runs out, you can apply for other zero-interest rate cards, or combine them with a new offer from a current credit card company. 

The other whole world of corporate credit and vendor trade lines

If you’re an active investor who is flipping or rehabbing houses, you will also want to establish vendor tradelines. These are basically 30-, 60- or 90-day accounts. 

“There still is 0 percent interest because there’s never interest on a vendor trade line. You just have to pay back within the terms,” Webster said.

“If you had $100,000 at Home Depot or Lowe’s, you could extend your capital tremendously by having access to that. You can use these cards and turn them into business credit.” 

How to set your business up on Dun & Bradstreet

Obtaining a D-U-N-S number (Data Universal Numbering System) from Dun & Bradstreet, the unique nine-digit number that identifies your business, is the starting point for your company’s Live Business Identity. According to the Dun & Bradstreet website, your “Live Business Identity is the most comprehensive and continually updated view of any company in the data cloud.” 

Having a D-U-N-S Number allows you to obtain a PAYDEX score that reflects your business payment history. Scores range from 1 to 100. A score of 80 or higher typically indicates prompt payment and can be extremely useful in obtaining new or additional credit lines. 

Webster’s final takeaway

“Go get some education, learn about business credit, and get your business charges off your personal credit cards. Don’t let lack of capital be the thing that causes your business to fail, because I want to see every entrepreneur be successful,” Webster said.