They keep their personal finances and business finances separate. At different points you need loans to satisfy some of your personal and professional needs. These loan providing agencies assess you on your financial standing in your personal or professional life as needed. Keeping these two financials separate, will not let one affect the other.
If you are bad at the personal financial front it might not affect your business requirements if your keep your personal credit and business credit separate. If you still have any doubts between these two terms or as to why you need to keep these separate, the following details about differences between the two will help you understand better.
Difference between the two terms can be stated with the help of following concepts:
Liability is when some one borrows something or owes some amount, who will finally bear it if the amount is not cleared on time. When it comes to liability on personal end, the individual himself/herself will bear the cost or be liable for whatever he/she owes. Compared to this in case of business, the company bears the liability and not a single individual.
In case of personal borrowings, if one fails to repay some amount or abide by a contract, he /she can use his personal assets to get him / her out of this problem. For example, jewelry, car, etc. whereas in such transactions related to business one can use only the assets related to the business. For example, machines, factory building, etc.
3. Surety Clause:
In case of business lending's when one pledges some asset or shares to get some loan, they include a surety clause that allows the lender to get back his amount by selling these assets in case the borrower fails to return. In personal lending's this clause is not very much in use. It is based on the will of the borrower and lender whether such clause has to be included.
In business borrowing, repayment is at risk because the repayment is based on the payments received from clients. If the client delays or does not pay, it might affect the repayment of the borrowings. In personal borrowings, it is individual's salary and expenses that control his repayment capacity.
5. Tenure or duration:
The duration of business borrowings is larger as compared to the duration in personal borrowings. Also the amount involved in business borrowings is quite large as compared to the personal borrowings.
If you wish to keep your credit score high you must see that you keep your business credit and personal credit separate so that I you are weak at one you do not mess up with the other.
Midwest corporate credit expert in providing information about business credit services. He assists business owners in establishing a business credit and personal credit profile and obtaining business credit with companies all around the country.