A recent Bluevine study finding that 75% of small business owners use personal credit for business purposes addresses an important question: is it possible to rely on personal credit for your business in the long run?

The Risks and Drawbacks of Using Personal Credit for Business

75% is a staggering number, but it doesn’t tell the whole story.

Using personal credit for business purposes can lead to financial instability and even bankruptcy. When business owners use their personal credit to fund their operations, they’re putting their personal assets at risk. This means that if their business fails, they could lose their home, their savings, and even their retirement funds.

Furthermore, using personal credit for business purposes can also lead to liability issues. As a business owner, you may be held personally liable for any debts or obligations incurred by your business. This means that if your business is sued or incurs significant debt, you could be personally responsible for paying those debts.

Separating Personal and Business Finances

So why do so many business owners rely on personal credit for business purposes? One reason is that it can be difficult to separate personal and business finances. Many business owners use their personal bank accounts to manage their business expenses, or they use their personal credit cards to make business purchases. However, this can be a recipe for disaster.

The simplest method for avoiding this pitfall is to use a business credit card or loan to fund your operations. By doing so, you can protect your personal assets and avoid liability issues.

Establishing a Separate Business Credit Profile

So, how do you establish a separate business credit profile?

First, you’ll need to register your business with the relevant state and federal agencies. This will give you a business entity that can be used to apply for credit. You’ll also need to obtain an Employer Identification Number (EIN) from the IRS, which will be used to identify your business for tax purposes.

Next, you’ll need to apply for a business credit card or loan. This will typically involve providing financial statements, tax returns, and other documentation to the lender. Once you’ve been approved, you can use your business credit card or loan to fund your operations.

Protecting What’s Yours

By following these steps, you can protect your personal assets, avoid liability issues, and establish a separate business credit profile. This will give you the financial stability and flexibility you need to grow your business and achieve your goals.