Can you use a Business Line of Credit for Personal Expenses?
A Business Line of Credit is a loan 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 using 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 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 must be careful and pay attention to the rules to avoid future risks. It is wise to take both 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. A check and balance about the transactions are essential when establishing 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 use them interchangeably. Following are a 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. The consequences will be legal when you mix the business with your costs if a businessman uses 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 must make a difference between personal and business expenses. Because when you mix them, you break this protection, and the attorneys can use this chance to prick the corporate veil and go for your assets when they have a prof against your business.
Building a credit history for your personal and business expenses is essential. Still, you cannot make a strong credit history when you use a business line of credit for personal reasons.
Moreover, it can become an obstacle in fulfilling your future business needs. As your business grows, you may want to apply, 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 using a business line of credit for personal use.
Blending your personal and business expenses makes it difficult to track a complete record of your business expenditures and tax-deductible purchases. You might not remember the business purchase when you review your bank statements.
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, you have a strong credit history and substantial revenue. It increases the chances of your loan approval.
The critical difference between a 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 the best loans that will cover your expenses, plus you can also repay them over time while maintaining a difference between personal and business lines of credit.