At first glance, business debt and personal debt might seem like two entirely separate things. However, if you are a business owner, especially a sole proprietor, the lines can get blurry quickly. Here's what you need to know about business debt vs. personal debt.
Understanding the difference between business debt and personal debt is essential. Both types of debt are distinct and have different consequences for individuals and businesses. Here's how to keep them separate and ensure you and your business stay out of debt as best as possible.
Business debt, also known as non-consumer debt, is any debt incurred for your business. It can be helpful to think of business debt as any debt incurred while trying to make a profit on something. Some examples include:
Personal debt, also known as consumer debt, is any debt incurred by an individual for personal, family, or household purposes. Some examples include:
Whether your business is currently struggling or could experience difficulties down the road, it is important to have a clear separation between business debt and personal debt.
If you use your business bank account or business credit card to pay for personal expenses, it can lead to:
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.
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.
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.
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.
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.
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.
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.