For many reasons (particularly in regard to credit), business and personal don’t mix. Although many entrepreneurs capitalize their early-stage startups with personal funds—they might use their home equity, personal savings, or personal credit cards to get things off the ground— it may not be a good idea for the long haul.
Here are just a few reasons:
1. It doesn’t do anything to help build your business credit profile. While it might be expedient to pull out your personal credit card to pay for a business expense, it isn’t reflected on your business credit and doesn’t help you build a strong business credit profile. While business credit can be difficult to access for early-stage businesses, there are some relatively easy-to-qualify-for credit providers that young businesses can turn to. Trade credit from vendors is a great option and so is a business credit card. This is debt that will help you build a business credit profile and potentially help you down the road when you might need a small business loan.
Roughly 30 percent of your personal credit score is based upon how much credit you have available compared to how much you use, so the higher balances often associated with business expenses could hurt your personal credit score if you use your personal credit card. This is true even if you pay off the balance every time your payment is due. A business credit card could be a better solution.
It really doesn’t matter if your business is an established business, an early-stage business, a sole proprietorship or a corporation; it just makes sense to keep things separate. This is one of the first steps to building a business credit profile that can open the doors to more financing options down the road. Relying on personal credit to cover business expenses is one of the biggest mistakes many small business owners make as their businesses grow—particularly when there are options available to help build a strong business credit profile.