Understanding The Differences Between Personal And Business Credit
Understanding The Differences Between Personal And Business Credit
Credit is a common way out for people in financially difficult situations. These financially difficult situations can be either business related or personal. Financial institutions have designed programs to bail out the customers from financial ruts. The credit terms for business and personal matters are completely different. Financial institutions also provide business credit through credit cards for the SMEs (small & medium sized enterprises). This can be considered a business loan for either starting or maintaining a decent momentum for a business. Personal credit through credit cards is used to pay off personal liabilities, manage funds, or buy essential things with an eye to paying it off in a timely manner. Differences between Business & Personal Credit: 1 Liability in the case of any default for business credit lies with the company or the enterprise. With personal credit, in the case of a default, the individual is liable to fulfill the amount owed to the lender. 2 Personal belongings can be taken as compensation if a person fails to fulfill the contractual commitment of the lender in due time. In the case of business credit the belongings of the enterprise can be taken if the company doesn't pay its credit on time. 3 In the case of companies there is a stock pledge that can be served to pay off the credit to the lenders in case the enterprise fails to repay the amount on time. The lenders take ownership of the said stock and can sell or auction it to retrieve their amount. But in the case of personal credit such a situation is rare. Only in case of home loans or larger amounts can the lender ask for a surety on property. 4 There is more potential risk involved in business credit. In the case of business credit the repayment is more often than not based on the clients' ability to sell a product or service. If the payment is delayed the installment also gets delayed resulting in either default or heavy interest. People unable to pay personal loans or credit amounts usually have it siphoned from their income. 5 Business credit usually runs for long periods and has an entirely different set of rules for payment. The arrangement is either contractual or otherwise legally bound with a clause dedicated to an exit policy. Personal credit is often based on mutual trust among the parties, or, if legally bound, it is for a small duration of time. Advice About Using Credit Those using business credit should regularly monitor their credit reports and never attach their personal assets to that of the enterprise in order to secure a line of credit or a loan. Credit whether it is business or personal is a great facilitator for solving financial worries but be careful with the terms and the repayments.About the author David Gass is President of Business Credit Services, Inc. His company publishes afree weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.comSource: http://www.articlesalley.com/article.detail.php/8394/185/Network_Marketing/Business/1/Understanding_The_Differences_Between_Personal_And_Business_Credit
Understanding The Differences Between Personal And Business Credit
does paying a small business debt with personal funds open you to liability?
I am running a small start-up business , and we are currently struggling. I have paid the majority of business expenses so far on a personal credit card or from my personal bank accounts.
A friend recently told me that his college professor advised that a personal account should NEVER be used to cover business debt because by doing so it opens the person to liability. the theory being something like, you have now mingled your personal assets with the business assets and now if someone ever went after the business legally or financially for whatever reason your personal assets would be at risk of loss.
Does anybody know if this is true, and if so what would a person do to correct the situation , after all of the pymts were already made with a personal card.
It depends on lots of factors.
Why not just play it safe.
Put the money into the company as owner’s equity, then have the business pay the debt.
Write the company a bill for the money paid already on the credit card, and have them pay you back. You can always put it back into the company as owners equity.
The risk is, that if the business goes under, and is in a lot of debt, the creditors might say, “hey, it is his company, not a seperate entity, we can collect from him.
There is not much risk, you are actually paying the company’s debts, you are thinking like the creditors. In the future don’t do that. Let the company pay the bills via the company, otherwise if the company goes under, and has huge debts, they might sue you for everything to pay the debts.
Make sure that once this creditor is paid off, you don’t use them again. They already have you compromised. It might be too late anyway.
Accounting for Small Business…. (messed up situation)?
Hey Everyone!
So, my business is setup and ready to be operational in a couple of days…but I have few questions concerning the accounting setup. I am using GNUcash as its a free software and I am not looking to spend on accounting software.
1) I did open a bank account in the name of my business…and funded that account from my personal account. I had the funds available and didn’t need funding or credits. Now while setting up accounts and recording transactions in accounting software how do I show the initial and later funding to my business a/c from my personal account? Does that first go to Equity A/c or Bank account? Also, I funded my business account from my personal account several times…does it go through the same account each time? Please help me with this…
2) Many of the expenses incured until now are setup costs…where and how do I record those expenses? Is there an account head called business setup cost? If yes what kind of account is that ? Equity? Liability or Asset?
3) Furnishing and decoration and labour costs incured for the same ? is it asset?
4) Last one, while setting up the office many of the suppliers insisted on cash payments to I made a lot of cash payments from my Business accounts…and when business accounts did’nt had funds I withdrew from my Personal account? and sometimes from my personal credit card? How do I account for these expenses?
any assistance will be highly appreciated….