Business credit cards can be a powerful tool for business growth. But if they aren’t wielded with care, they can set you back.

Here are seven common pitfalls to avoid when it comes to selecting and using a business credit card:

1. Choosing the Wrong Card

   First, it’s essential to understand the key differences between personal and business credit cards. While personal cards generally offer more consumer protections (like the limits on interest hikes set by the Credit CARD Act of 2009), business credit cards may enable you to build business credit, which is vital to securing affordable financing in the future.

   Read up on how to maximize reward accrual and redemption.

   But business credit cards aren’t created equal either, and you’ll want to choose one that aligns with your specific needs and goals. Pay attention to special introductory offers, annual percentage rates (APRs), and annual fees, and don’t ignore other valuable perks like rewards for travel or office supplies.

2. Mixing Business and Personal Expenses

   One big benefit of a dedicated business credit card is that it consolidates and categorizes your monthly spending. Correspondingly, failing to keep your business and personal expenses separate can complicate
   your bookkeeping, make tax season extra stressful, and even jeopardize your legal protections.

   Ordinarily, operating as an LLC or corporation limits your personal liability for business debts and lawsuits.
   But if you commingle your funds, this can give lenders or litigants the ammunition to “pierce the corporate veil” and go after your own assets. If you accidentally put a personal charge on your business card, promptly reimburse the company.

3. Spending Without a Plan

   Too many cash-strapped small-business operators have been tempted into overspending by a high credit limit. Even with a 0% intro APR and plenty of perks, it’s worth reminding yourself that just because an expense is deductible doesn’t mean it’s free.

   To avoid charging beyond your means, review your credit card statements regularly to ensure they align with your budget and cash flow forecasts. Make sure to scrutinize small recurring charges like app subscriptions and memberships – these are easy to sign up for on impulse and equally easy to forget about as they slowly chip away at your revenue.

4. Financing the Wrong Purchases

   Business credit cards can be used for virtually anything, but that doesn’t mean they’re the right tool for every purchase.

   They’re often a smart choice for small, day-to-day expenses since they’re more secure and convenient than cash or checks, and they provide automated expense tracking. They’re also great for financing larger purchases over
   a short term – if you can pay off the amount within your billing cycle or introductory period, you can conserve working capital at zero cost. But for major expenditures that need to be spread out over multiple months, look into asset-based financing or other secured borrowing solutions.

5. Carrying a Balance

   Let’s use some actual numbers to show the power of compounding interest.

   Suppose your business credit card has an APR of 24%. If you put $10,000 on your card and pay it off by the
   end of the month, you’ll spend $10,000. If you make a payment of $300 this month and pay off the full balance next month, you’ll spend $10,194. But if you keep making monthly payments of $300, you’ll eventually spend $16,644 – and likely hamper your credit score for years. This is what makes credit cards so valuable for cash flow management – and so unsuitable for long-term financing.

6. Missing Out on Rewards

   Many credit cards come with rewards specifically geared towards small business needs, like cash back or points redeemable for airfare, fuel, or telecommunications.

   These rewards, along with signup bonuses that award you extra points when you spend a certain amount in the first few months, are often key selling points. But just as often, busy business owners don’t take full advantage of these programs as years pass. Read up on how to maximize reward accrual and redemption. And rather than letting points sit unused, consider distributing them as employee bonuses or transferring them to yourself for personal use (with no tax implications).

7. Neglecting to Establish Employee Policies

   Issuing credit cards to other members of your team can help you save on operational costs since there are no purchase orders, reimbursement checks, or petty cash drawers to manage.

   At the same time, giving employees access to a substantial credit pool can be a serious liability if you don’t have clear policies and oversight mechanisms in place. The good news is that many business cards come with customizable controls that allow you to limit spending by transaction amount, location, merchant category, and other factors. You can also monitor card use and set real-time alerts for added peace of mind.

Play Your Cards Right

Consult your financial institution for personalized guidance on business credit cards and other financing solutions.