Banka: Mixing personal and business credit

You may not be able to obtain business financing in the future if no credit rating has been established.

There are reasons to both use and not use your personal credit card for your business.

First, a corporation is a separate legal entity, so it has its own credit rating and pays its own taxes. By using personal credit cards, you are not working on improving the credit rating of your business,

As a result, you may not be able to obtain business financing in the future if no credit rating has been established.

If you are busy, it may be more difficult to separate your personal expenses from your business expenses, creating a potential accounting nightmare.

As that situation can become expensive to sort out,  take the time to go through all your receipts and determine if it was business or personal.

It is always easier to remember what something is for if you complete your bookkeeping right away, rather than only when taxes are due, and even easier if you have two separate credit cards.

If you use your own personal credit for business, that places your own personal credit rating on the line for the business.

If your business is going through a tough time, an unpaid bill would not only hurt the business credit rating, but your own as well.

Financing your business with your own personal credit card creates a challenge when you decide to sell it because you will be using the proceeds to pay off your debt.

This would also create a shareholder dividend that you would need to pay taxes on personally.

If the debt was a business credit card, that would reduce the amount of the gain on the sale and would also reduce the shareholder dividend.

To avoid this scenario, if you do use your personal credit card for business, it is best not to carry a balance owing in the business. Submit monthly expense reports so that the balance is paid back to you on a monthly basis.

If you are using your personal credit card in your business because you can increase your travel points, the Canada Revenue Agency would determine this to be a taxable benefit in favour of the shareholder/employee and you would then be required to determine the value of the benefit (increase in points due to additional business expenditures) and this value must be included on a T4 slip.

A corporation has limited liability and as a shareholder there is some personal protection. If you have used a personal credit card in your business or guaranteed any business financing personally, you run the risk of being sued personally as well as the business being sued if it should get into trouble.

Many banks now have business packages that include a business credit card with a modest limit.  These programs also provide other convenient features for businesses.

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