Business Debt vs. Personal Debt: What’s the Difference?

E.J. Simonsen | Nov 15, 2022

At first, business and personal debt can seem like two very different things. But if you are a business owner, especially of a sole proprietorship, the lines can get blurry quickly. Here's what you need to know about business debt vs. personal debt. 

Business Debt vs. Personal Debt: What’s the Difference?

Business debt and personal debt are very different, and they have different implications for different people. Here's some information on how to keep both separate, and ensure you and your business are staying out of debt as best possible.

Let’s start with some definitions.

Business Debt

Also known as non-consumer debt, business debt is any debt incurred for your business. Sometimes it can be helpful to think of business debt as any debt incurred while trying to make a profit on something. Some examples include: 

  • Machinery
  • Office space rental
  • Business equipment or vehicle loans

Personal Debt

Also known as consumer debt, personal debt is any debt incurred by an individual for personal, family, or household purposes. Some examples include: 

  • Home mortgage
  • Car loans
  • Domestic support obligations
  • Credit card debt on cards used for personal use

Why Does the Difference Between Business & Personal Debt Matter?

If your business is struggling (or if it is ever to struggle in the future), it is important to have a clear separation between business and personal debts. Why?

First, payment of personal items from your business bank account or credit card can complicate your accounting, leading to improper deductions and inaccurate tax returns. Second, intermingling of personal and business expenses can create personal legal liability issues. This could include paving the wave for a creditor to pierce the corporate veil

Especially if you are a sole proprietor and/or have signed a personal guarantee, it is very easy for the lines to blur between personal and business debt. This can mean that if your business fails, your personal finances will be in trouble as well. Keeping the two types of debt separate can help ensure your personal finances are not impacted by your business’s failings. 

Having Trouble Untangling Business & Personal Debts?

First thing’s first — you are not alone. Tangling business and personal debt happens to many small businesses across the country. However, this is not something you should let go on for long. Here are some steps you can take to resolve the situation.

Gather Documentation

See what documentation you can find that shows the differences between your personal and business debts. Any invoices, receipts, credit card statements, etc. can help you start to separate the debts from each other and total up actual business expenses. 

Hire an Experienced Accountant

If you have a history of paying personal items like rent, mortgage, groceries, kids clothing, etc. from your business financing and you are not in financial distress, you should hire an experienced accountant. They will have better knowledge and insight on how to keep business items separate so they don’t bleed into your personal assets. 

Get in Touch with A Business Debt Relief Attorney

If your business and personal finances are in a tangle and your business is struggling, contact a business debt relief attorney as soon as possible. They can put you in touch with a financial professional who will support you, and they can help you figure out the best path forward — whether that be responding to creditor lawsuits, challenging fraudulent UCC liens, protecting you from harassing merchant cash advance lenders, etc.  

Be Diligent About Keeping Your Business & Personal Finances Separate

Once you are on a better track keeping business and personal finances separate, it is critical to do everything you can to keep it that way. Your accountant or business debt relief attorney can give some direction on this, but here are some ideas to get started. 

  • Obtain individual credit cards — one for business expenses, and one for personal expenses
  • Open a business checking and savings account
  • Pay yourself a salary
  • Invest in a certified accounting software

Contact The Lane Law Firm for Help with Business Debt

If you're facing business debt, personal debt, or both, you might be feeling overwhelmed. Know that you don't have to deal with it on your own. The Lane Law Firm's attorneys are experienced in both types of debt and can help understand your situation and find the best possible resolution.

Don’t let business debt impact your personal finances. Schedule a confidential, no-obligation consultation with one of our business debt relief attorneys today.


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