How Your Business Credit Could Affect Your Personal Credit And How To Protect Yourself
November 30, 2009 · Print This Article
You know to keep your finances separate. Business expenses should be kept on business accounts and personal expenses should be kept on personal accounts. You know better than to co-mingle your finances and doing that protects you from having your business credit affect your personal credit.
Or does it? Actually, it all depends on how you acquired your business credit.
Setting The Scene
This whole scenario begins with your business. You take out a small business loan to get started on whatever type of business you have decided to embark upon. So far it sounds like it could be a smart move. Opportunities seem limited in the business world for those trying to work their way up the ladder so why not create your own opportunities?
The story continues as you begin your own personal line of business credit and perhaps acquire a few business credit cards to cover any expenses that pop up. Then the economy takes a turn for the worse. Business is bad and soon these lines of credit are pushed to the limit just trying to keep your business going.
It could go so far that you have no choice but to start over and that your business files for bankruptcy. It is not a story with a particularly happy ending, but it is an ending. Or is it?
It’s Not Over Yet
This should be the point at which you begin your new life with the lessons you learned and find a new way to support yourself. Your small business may not have survived the times, but you handled it the best way you knew how. These things happen.
Then collection agencies start contacting you about paying off all those defaulted credit lines and credit cards from your old business. You thought that because it was business credit that you would not be held personally responsible. You could be wrong.
Sometimes to get small business loans, lines of credit, and credit cards you have to use your own personal credit to apply for them. If you do this then you have given a personal guarantee that if anything happens to your business that you will be held personally responsible for its debt.
How To Protect Yourself
The way to protect yourself is to not personally guarantee business credit or credit cards. If you do this then you will be responsible no matter what happens. If you do not want to be personally responsible for your business’s debt then do not give this personal guarantee.
Do not run your business as a sole proprietor. In most cases if you want to obtain access to business lines of credit without providing that treacherous personal guarantee then you need to set up your business as a separate legal entity. This could be a limited liability company or a corporation. You just have to be separate legally.
Whenever you are performing financial transactions or opening lines of credit for your business, never use your social security number. This will give you that personal responsibility that you are trying to avoid. Instead use your business’s Federal Tax Identification Number or Employer Identification Number. These will keep personal responsibility separate from business debt.
Your business credit could hurt your personal credit if you are not careful. As optimistic as you want to be about your business, do not put your own credit on the line if the business does not work out. Knowing this before you start your own business will protect you if your business does not work out the way you hoped.
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This is true and it is essential business owners remember this when trying to finance their business. Your personal credit does matter! Thank you for posting this. But what do you do if you are ready to finance your business? I would like to share my experience with your readers……hopefully my experience will help them out too.
My wife and I have our own business. And we are on the verge of expanding but we didn’t know how we were going to fund our expenses. We tried investors, but during the recession, we could not find anyone who wanted to invest in our business. So we decided to look at unsecured business loans and business cash advances.
We were a bit leery at first, but now after going through the application process, we are ready with our business finances. And just in time for the holidays for our business has increased tremendously due to the holiday rush.
It is worth sharing it with your readers.
Article by at 2010-08-01 22:17:27
Categorized in Credit Counseling,
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I bought my credit card machine from a company called Retriever they have a wide selection, I didn't really buy one of the faster machines although they suggested I did for my type of business, but I have no problems with mine yet. It could just be that yours is older and you need a new one, but definitely try talking them about an alternative machine. Hope this helps.
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How Your Business Can Benefit from a Business Credit Card | Credit …
Smartphone payment options with the help of RFID tags are in the works worldwide.
AT&T – Radio-frequency identification – Business – Credit card – MasterCard
Establish positive credit lines. Utilities, cell phones, etc don't count on your bureau (Usually they only report if you owe them money)
It basically leaves you these options:
Credit card
line of credit
auto loan
mortgage loan
Bottom line, credit card is the easiest to get. Credit cards are useful in rebuilding your debt because a banker can see how you are managing your available credit balance- that is, if you have a $2000 credit card, is your balance managed well, or do you owe $1997 on it.
great
If you consented to this in the terms and conditions of the corporate credit card they can.
You should read the terms and conditions of your corporate card. At the end of the day, you should seek specialist legal advice if you still have concerns.
A lot of people who aspire to own their own home will let the fear of their credit score stop them from ever exploring what their actual score is and how to improve it. This is definitely the #1 reason to start the ball rolling…
It takes time with credit, your better of having a little balace and paying it off little by little, than to pay it all off at once!
I use Discover for business and Chase for personal. Here is why:
Discover has had a long tradition of being different. When the Discover card was first introduced there was no annual fee, – that may not seem like a big deal but back in the day it absolutely was. Discover credit cards also offer cash back rewards.
For a business using Discover for their corporate credit cards this is a big advantage – you get cash back for spending. And the best part about using these particular corporate credit cards is that the cash back rewards are targeted at specific purchases that you will make as a business, such as gas, travel and office supplies.
The current standard APR on Discover corporate credit cards is 13.99%. There is also a 0% APR introductory offer. Remember – these cards come with a grace period of at least 25 days when you pay the balance in full each month. This means you can run your business interest free on Discover's money in 25 day cycles.
A lot of the others have shorter grace periods – something most consumers don't think to check up on.
If your a sole proprietorship or have fewer than 20 employee's there is a serious chance that your personal credit will be affected.
Bankkruptcy depends on how your business was structured. If you were structured as a DBA you you might be on the hook. If you structured as a LLC then your personal assets are safe.
The most important thing you can do is pay off the debt any way you can to avoid any more problems. You can always contact the credit card & try to make a payment plan. Most of the time they would rather just get their money.
Business Credit: No Personal Credit and No Personal Guarantee: Our Business Credit Membership provides weekly trai…
Go to my channel and read the comments!!! you will get $100 free!!!
I don't know for certain, but I would imagine that you are on shaky legal footing doing so. First, what you are doing is technically taking a cash advance, without paying the higher fee and interest rate. Secondly, the credit card company *may* retain a security interest in the items purchased, and if you aren't purchasing an item, you may be committing a fraudulent act.
Your answer is probably somewhere in the fine print of your user's agreements with your credit card processor and your bank.
Updated – …:
This seems to be just what I was looking for. A recession is the perfect time to scoop up a business for little or no money up front. A credit line will provide the cash needed to get the biz back on its feet then it can be sold for a fat profit.
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Your mistake was to use your credit cards to start your business.
: Personal Loans: Don't compromise your personal needs
That is speaking of a nation as a peoples, not as a government.
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Hello,
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Good luck.
LOL…3:04 – Mr. Money showing Miss Judy her father’s credit score….clearly breaking confidentiality laws by today’s standard.
Excellent info! YouTube marketing rocks. But, I think the reason why most people fail online, is because of the complexity of the programs. Most people don’t want to SELL, especially expensive programs.
No they dont. You will have to start fresh again. Best option is to get a visa when you get here so you can start building your credit history quickly. I know, it sucks, but unfortunattly, Canada has not become the 53rd state yet, so they dont have access to your credit in the states.