Balancing Personal and Business Credit: A Guide for Small Business Owners

As a small business owner — whether a sole proprietor or a general partnership — your personal and business credit reports are closely linked in the eyes of financial institutions. Mistakes you make with your business credit will undoubtedly reflect in your personal credit report, which is why you must be vigilant about keeping track of both aspects of your financial situation. Far two many business owners fail to correctly balance their personal and business credit, which can lead to bankruptcy and other problems.

Small business owners must almost always personally guarantee any loans or lines of credit that they take out on behalf of the business. For example, let’s say that you need extra space for storage so you decide to hire a contractor to expand your office building. To fund this renovation, you take out a business loan from your bank in the amount of $30,000, to be paid back over the next three years. Six months later, however, your business is floundering and you don’t have the cash to meet your obligation to the loan. Would you be surprised to find out that creditors will not only come after your business, but also you personally?

Balancing your personal and business credit isn’t difficult as long as you realize that they are inextricably linked. Each time you fail to make a payment on your business credit card, it can be reflected in your personal credit report as will as that of your business. So how do you keep from ruining your financial history in an effort to get your start-up business off the ground? All it really takes is a little time and financial management.

Use your personal and business credit cards separately. In order to balance your personal and business credit, you’ll need to keep them separate. When you make a purchase for your business, make sure to use your business credit card. If you’re going to the grocery store to pick up dinner for the family, however, use your personal credit card. This will make banking — not to mention taxes — much easier to handle, and you’ll be better able to keep track of your cash flow for the business. It’s like using efficient ticket management system that allows you to track your operation.

Carefully monitor your personal and business credit. There are credit monitoring services that charge a nominal fee each month to keep track of your credit report, which might be a good investment. You can also monitor your credit on your own by ordering copies of your credit reports every six months. This is to ensure that you know exactly what’s going on your personal and business credit reports; if you know, then you won’t have to worry.

Don’t personally guarantee business loans. Although you might not always be able to avoid it, try to stay away from financial lenders who require that you personally guarantee a loan made for business purposes. The better your business credit, the easier this will be, but you should definitely try and find lenders who are willing to give you a loan based on your business name only.

Sell your assets to cover business loans. If you run into a cash flow problem, you might be left with no option other than to sell some of your assets to cover a business loan. It is vitally important that you meet your financial obligations with regard to your business; if you don’t, you might find yourself without a source for funding, which could mean the end of your entrepreneurial endeavors.

Keep meticulous records. Balancing your personal and business credit means keeping meticulous records. Keep files for both your personal and business financials and update them on a monthly basis. Retain copies of your credit report for future reference and don’t hesitate to call creditors if you think that their calculations are incorrect. Remember: Identity theft is not only a personal problem, but also an issue for businesses.

Nicole Hennig
Nicole Hennig is a freelance writer, content writer, blogger, and also a photographer. She graduated from the University of Caloocan in Johannesburg, South Africa in 2015.

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