Can you use a Business Line of Credit for Personal Expenses?
A Business Line of Credit is a loan that you get from a bank or a lender to cover your expenses. Businesses use the line of credit for various reasons, such as purchasing inventory, seasonal downturns, or buying new equipment. But, when we talk about business loans, there is a thin line between your personal and business expenses.
So, here a question arises: Can you use your business line of credit for personal expenses? Can you use business finance to pay for expenses other than business? No, you cannot. This blog will discuss can you use a business line of credit for personal expenses?
There is no doubt that business owners use cash from a business line of credit to pay for their expenses. If you use a line of credit for persona, then it is not tax-deductible. If a company finds out that you are paying your costs from your business line of credit, you are in trouble. The consequences are that they will classify it as a personal line of credit and disallow all the interest rates.
Thus, you have to be careful and pay attention to the rules to avoid any future risk. It is a wise option to take both of your accounts separately to have a complete record of your business and personal expenditures.
Now, you will wonder how lenders can find out that you are using the business line of credit for personal or business use? It is not the case that a lender will monitor you to find out the reason for your transaction. If you are using a small business line of credit, it is unfeasible to screen every running transaction.
But, when we adhere to government tax policy, it is essential to have a check and balance about the transactions when you establish a small business line of credit. For instance, if a lender finds out that you are using a Business Line of Credit for personal use, you might face some financial penalty, which does not leave a good impression on your credit history.
Reasons Why Can’t You use a Line of Credit for Personal Expense?
You can use your business line of credit for personal use, but that doesn’t mean you should sue them interchangeably. Following are the few reasons for not using your business line of credit for personal use;
This is the main reason for not using your business line of credit for personal expenses. When you mix the business with your costs, then the consequences will be legal. If a businessman is using his business as an extension of their personal life, he can take responsibility for any business’s legal liabilities.
To keep the legal protection against the lawsuit as an organization, you have to make a difference between personal and business expenses. Because, when you mix them, then you break this protection, and then the attorneys can use this chance to prick the corporate veil and can go for your assets when they have a prof against your business.
It is essential to build a credit history for both your personal and business expenses. Still, when you use a business line of credit for personal reasons, you cannot make a strong credit history.
Moreover, it can become an obstacle in the way of fulfilling your future business needs. As your business grows, you may want to apply or purchase equipment or look for funding for expansion. At that time, a strong credit history will help you to qualify for such loans and cover your expenses.
Another main reason for not your line of credit with business is the tax. The government doesn’t retaliate appropriately to those individuals who dodge tax payments. Moreover, a company creates more tax liability when they use a business line of credit for their personal use.
By blending your personal and business expenses, it is difficult to track a complete record of your business expenditures and tax-deductible purchases. When you review your bank statements, then you might not remember the business purchase.
Moreover, when you use them personally, then on your business bank statements, your personal information is viewed by all, including home address, credit limit, credit score, and individual purchase.
Business Line of Credit vs Personal Line of Credit
There is no doubt that a business line of credit is one of the best options for many small businesses. But, if you are looking for a loan, then you have a strong credit history and substantial revenue that increases the chances for your loan approval.
The critical difference between the business line of credit and a personal line of credit is that a personal line of credit is attached to an individual. In contrast, a business line of credit is tied to your business.
To sum up all the discussion, we can say that you should never use your business line of credit for personal expenses. If you do that, then you might be getting into trouble and bear the harsh consequences. If you are confused about managing both of them separately, BitX Finding is here to guide you. Our experts will suggest you the best loans that will cover your expenses, plus you can repay them over time while maintaining a difference between personal and business lines of credit.