Does Business-Related Debt Affect My Personal Finances?

For many entrepreneurs, there is a thin line between your personal finances and your company accounts. However, it begs the question if that means that business debt becomes your personal problem?

The answer is complex due to how you structured your business and how you operated the company’s finances.

The Business Structure

Depending on your structure selection, you may be at risk for some financial liabilities when it comes to loans or debts. For example, most large-scale businesses select an LLC, S Corp or a C Corp as a way to protect themselves from any liability when it comes to creditors or payments for business-related loans.

However, there are more risks when it comes to a sole proprietorship or partnership. You may not have enough business assets to cover the debts, so creditors will begin to pursue you for your personal assets. And with a partnership, you and your partner will be liable for the debts.

The Record Keeping

Another way to avoid liability is proper record keeping. If you maintain an accurate separation of your personal affairs and business records, you should be able to keep your business debts out of your personal bank account.

Problems begin when you start using personal investments for business expenses. Imagine using a personal credit card to pay for business trips or company supplies. You will be 100% liable for any transactions you made with your personal bank accounts.

If you do set up your books correctly, you may be able to keep your business debts out of your personal wallet. However, there is always a risk of personal liability.