Many small business owners don’t keep their business and personal credits separate and use personal credit to run their business. In fact, acting like this could put you at risk if your business sinks. Moreover, today, many creditors don’t rely only on personal credit when judging a business’s financial health. The thing is that personal credit doesn’t serve as an ideal indicator of business behavior. So, from the aspect of legal liability, it’s important to separate your personal and business finances.
Building a credit profile for your company, separate from your personal credit history, can help you access 10 to 100 times more credit than you could as a consumer.
So why it’s important to keep your personal and business credits separate? First, a business can hardly be run using personal credit alone. Another important point is that thanks to separately kept credits it’ll be easier to identify business expense deductions for tax purposes. On the other hand, separate business credit protects your personal credit scores.
Keeping Your Personal and Business Credits Separate
It’s important for business owners to take steps to keep their personal and business credits separate and focus on creating good credit scores. However, even if you have bad credit, you can still get the best for your business needs if you turn to a reputable business loan provider like firstamericanmerchant.com. If you’re interested in merchant loans bad credit, First American Merchant can be the best choice. FAM specializes in the high risk industry and has an A+ rating with the BBB.
To keep your personal and business credits separate, follow the below-mentioned steps:
- Operate as a Separate Legal Entity
Set up a sole proprietorship, LLC or S-Corp. Turn to your tax advisor or financial planner to determine which legal entity is the best fit for your business and financial situation.
- Have a Business Checking Account
A business checking account can help you keep your business financials more organized. Also, you can have a better idea of where your money is going. Your business account should be used for all business-related expenses.
- Focus on Building a Business Credit History
Open a business credit card and don’t fail to pay on time. The business credit bureaus will add your positive payment history to the credit file associated with your company. When applying for a business card, make sure the card provider reports to business credit bureaus.
- Keep Your Business Credit Under Monitoring
Your company’s creditworthiness is evaluated by lenders and creditors on a regular basis. If your credit grows worse, terms can be adjusted or even stopped. To avoid this and other problems, you should regularly monitor your credit history.
Avoid blurring the lines between personal and business credits. Do your best to keep a line of separation between them as it’s essential to your business’s long-term success.