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Old 2nd May 2012, 10:11 AM   #1
TCCDepot
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Smile Devastating Mistake #9: Using Personal Credit To Finance Your Business

The hands-down biggest and most common mistake entrepreneurs make is using personal credit to finance their businesses. Common examples include:

• Paying for business expenses with your personal credit cards

• Obtaining personal loans to finance your business expense

If you’ve used one or more of these financing methods to fund your entrepreneurial ventures, I’m not surprised. Shockingly, many business-start-up experts recommend these methods for funding new businesses.

Their advice is well-intentioned … but nonetheless incredibly dangerous. The reason for not using your personal credit for business purposes is simple: You WILL destroy your personal credit. It’s inevitable.

By using your valuable personal credit for business expenses, you run the risk of:
Lowering your personal credit score. When you personally guarantee business-related financing, the lender will require a personal credit check. Every time an inquiry into your credit history is made, your personal credit score takes a hit. The lower your score drops, the harder it is to secure financing…especially financing with the most favorable terms.

Reducing the amount of credit available for personal use. The more credit you have personally guaranteed for your business, the higher your debt-to-income ratio soars … and the less that lenders will be willing to give you for personal use. Signing that loan for your business could prevent you from getting a mortgage on the new house you plan to buy a year from now.

Losing everything. When you use your personal resources or credit to finance a business, you chain your financial security to your company’s success. If the company fails, you’ll be left holding the bag … and your personal finances will sink along with your business. You’ll never recoup the “loan” you took from your retirement account to get your business launched. Creditors will be calling you for payment. And if things get bad enough, you may have to declare bankruptcy.

To protect your financial security, don’t use your personal credit to finance your business activities. Instead, take action to secure credit in your company’s name – WITHOUT Risking Your Personal Assets, Lowering Your Personal Credit Score, and eventually, without a personal guarantee.

Hopefully this is helpful for everyone

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Old 2nd May 2012, 10:34 AM   #2
enterprisepe
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Thanks for the post.


This article might also be of interest to those with small business or looking to start one.

http://www.business7.co.uk/business-...6408-23831070/

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Old 2nd May 2012, 12:34 PM   #3
TCCDepot
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Ok thanks, I'll post it there as well

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Old 14th January 2013, 01:31 PM   #4
John Knox
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Quote:
Originally Posted by TCCDepot View Post
The hands-down biggest and most common mistake entrepreneurs make is using personal credit to finance their businesses. Common examples include:

• Paying for business expenses with your personal credit cards

<snip>

To protect your financial security, don’t use your personal credit to finance your business activities. Instead, take action to secure credit in your company’s name – WITHOUT Risking Your Personal Assets, Lowering Your Personal Credit Score, and eventually, without a personal guarantee.

Hopefully this is helpful for everyone
This is confusing to me concerning what I have been taught before. I will be interested to learn some different perspectives on this.

Does any of this apply to a sole proprietorship? Here in California it is cost prohibitive to incorporate below about $500k in the conventional way of thinking. Will any creditor extend credit to a sole prop. without a personal guarantee?

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