Personal Credit Card Debt Vs. Business Debt
The difference between personal credit card debt and business debt is simple: You are personally liable for all personal credit card debt that you incur, and your business is responsible for all its business debt.
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Avoiding Personal Liability
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You cannot be held personally liable for business debt as long as none of your personal assets are being held as collateral for your business loan. You could walk away from bad business debt and not have to worry about losing your home or personal belongings. But there's a catch: In most instances, banks and lending institutions are reluctant to grant business credit unless the owners of the business agree to some personal liability, usually in the form of real estate or savings accounts that are used to guarantee the loan or credit line.
Small-Business Loans
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Small business owners seeking loans for startups or company expansions almost always have to put up personal collateral. The banks obviously want to avoid being burned by entrepreneurs who take out large loans without any personal liability and then simply walk away if the business enterprise fails.
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Personal Credit Lines
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Many small business are initially funded by personal credit cards. Entrepreneurs unable to gain business financing often fund their enterprises by using their own charge cards or home equity loans. But if the business fails, they're stuck with the debt charged to their personal lines.
Gaining Business Credit
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Structuring your business as a corporation or limited liability company is a good way to separate it from your personal finances. This will allow you to begin building a a business credit score separate from your personal finances. If you apply for business credit, be sure to seek it in the name of your business without a personal credit check or personal guarantee.
Where To Look
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Office supply chains, hardware stores and other vendors often extend credit to small businesses, even startups. Then as the business grows, it may develop assets, such as steady accounts receivables, that can be used to secure additional lines of credit. In the meantime, the business owners must make careful decisions about using their own personal credit cards to fund the enterprise.
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