We’ve all heard the stories of companies that grew to be massive where the initial funding was raised by the owners maxing out their credit cards.

Inherently, it sounds like a risky thing to do. Credit card debt can be very expensive. Unlike a loan, a facility can be cancelled at any time or a credit limit reduced.

In this article, Panthera examines using personal and corporate credit cards to fund your business.

Why use business credit cards?

Virtually all business credit cards come with an interest-free period, normally up to 54 days after purchase.

If cash flow is tight, you may benefit from being able to make payment to a supplier (they get their money sooner) via card (you can delay paying up to 54 days with no interest premium).

Many cards will come with a heavily-discounted or zero introductory interest rate which will work well for a business looking to make a more expensive investment and spread the cost over up to a year. Using the card and being disciplined in paying down the debt will work out cheaper than using an overdraft or another form of lending.

If you do end up paying interest on a purchase, the interest paid on any form of business finance is deductible too.

Many modern business credit card accounts allow you (and your colleagues) to make purchases and have them assigned against the director or employee name. You can log into your account and find out who is spending what and how much it’s costing the company. Having a system like this also makes accounting and bookkeeping for expenses paid for on credit cards a lot simpler to record.

First, what credit cards are available just for businesses?

There are plenty of credit card accounts out there designed just for businesses.

To see what’s available, click here to go to the referral/comparison site, CreditCards.com. (Please note that Panthera receives no compensation if you take out a credit card through this site and this site’s appearance on our blog is not an endorsement of the company).

Using personal credit cards to fund a start-up or when a business credit card is not available for your business

What if you’re not yet in the position where your company would qualify for a credit card account but you already have personal cards you can use?

This is fraught with danger. You should aim to protect your personal credit rating before your business credit rating. Your business may not survive but you will. If you load your personal cards with business expenses and your company doesn’t make it, you’ll be liable for the debts and the accruing interest on them.

Panthera would never advice that you use your personal credit cards to buy goods or services for your business if you have the choice.

The choice of personal credit cards available for you is even greater than the choice of business cards – please check out this page on MoneySupermarket for typical examples of current offers. (Again, we caveat the presentation of this link by stating that we are not paid if you go ahead with a credit card and we do not endorse this site).

If you are determined to go down this path, protect yourself by going for the longest-possible interest free period.

How do I claim for business expenses if I pay for it on a personal card?

HMRC states that, "Businesses are often run in such a way that employees make payments on their employer’s behalf. For example, an employee may buy stamps for the employer and be paid from petty cash. This transaction is outside the scope of Section 62 and Section 72: the employee has received no money of his own on which we could make such a charge."

If you are a director (and therefore employee) of your own limited company, you have essentially paid in capital to your business in a personal capacity to make a purchase, much like if you go down to the Post Office to buy stamps, as in the HMRC example.

Your company can reimburse you without your incurring any personal tax liability. You’ll need to record it in your company accounts and keep the receipt as proof of the purchase.

Get in touch

For all matters accounting, bookkeeping, and business planning, please call the team on 01235 768 561 or email enquiries@pantheraaccounting.co.uk.