Start Building Business Credit and Avoid These Top 4 Personal Credit Risks

Copyright (c) 2009 Marco Carbajo

Research shows that over 65% off all small business owners use credit cards on a daily basis; but the massive problem facing small business is less than half of those credit cards are in the business name. The others continue to use the owner's personal credit cards for business purchases.

Using personal credit instead of establishing business credit is a costly mistake on many fronts.

Here are my 'Top 4 Reasons Why You Should Not Use Personal Credit for Business.'

Reason 1

It impacts your personal debt to credit limit ratios, credit scores, and personal finance capacity for you and your family.

This reason alone has caused severe personal credit damage and liability to small business owners across the country who have lost their businesses due to the recession and have used personal credit and personal guarantees for all their business financing. Just ask Kirk Brown, owner of Buck's Shoes in Fremont, who knows firsthand what using personal credit for business can do.

When you properly separate your personal credit from business credit the debt you accumulate for your business should only report to your business credit file not your personal credit file. More importantly you protect you and your family from personal liability when you get approved solely on your businesses' credit file.

Reason 2

When you use your personal credit for the benefit or operation of the company it can lead to an "alter-ego" decision by regulatory or a financial organization, and a piercing of the corporate veil.

This would directly endanger the owner's personal assets and make the owner or owners directly liable for the penalties or repayment of any debts incurred by the business or corporation.

It's always a smart strategy to build business credit rather than ignore it through the co-mingling of funds'and this includes the "co-mingling" of credit files.

Many small business owners believe that business entities protects them because entities are viewed as a separate legal body but you can jeopardize that corporate veil when you use personal credit for the benefit of your corporation!

Reason 3

Another disadvantage of using your personal credit in place of proper business credit is the fact that the use of personal credit for the operation of a company can make your company appear improperly funded or operated, or may incorrectly establish that your business credit is unstable, unreliable, or overextended.

Reason 4

Last but not least what might be perfectly normal and acceptable for a business credit profile, such as submitting multiple applications for business credit, can have a serious negative impact on personal credit because of what's called excessive inquiries.

When you start to build business credit you may avoid these costly mistakes plus improve your financial capacity for funding unforeseen expenses, legal fees, expansion costs, or investments.