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Why you should keep personal and business credit separate

Monday, June 11, 2018

It is always important to evaluate and protect your credit standing just as you would secure any valuable asset.A blunder many entrepreneurs make is that they use personal credit to run their business. In any business scenario, that is a strict no.

The primary reason for businesses in SME India to have separate credit profilesis that in the absence of business credit, a small business owner is always at a risk of losing personal savings, should the business not take off.

Separate credit lines also make it easier to identify accurate business expenses and help ease the burden of tax calculation. Lastly, in order avoid maxing out your credit lines and to protect your personal credit scores, one should not rely on personal credit alone to run a business.

Now that you understand the importance of separating the two, read on to know how you can make it happen:

#1 Establish your business as a separate legal entity
You must legally name your business, register it under the law of theland and then take the help of your tax advisor to determine which legal structuresuits the nature and state of your business best. This is necessaryfor tax and other legal purposes.

#2 Set up a business checking account
A separate business checking account allows you to keep your business funds distinct from your personal funds. This in turn helps you keep a tab of your business expenditures, helping you arrange and organise your funds better. This is the best way to stay future ready.

Furthermore, a business checking account allows your business to show personal income for the purpose of loans, credit and taxes, which is beneficial in the long run.

#3Build a business credit history
Taking a business credit card and using it to make business related transactions is the best way to build business credit history. Remember to make the payments on time and not take on any late-fee liabilities. Business credit cards also allow you to show interest as tax deductions.

Furthermore, to build an effective credit history, you must open credit lines with your vendors and suppliers to establish a healthy payment record.

By doing so, you will watch your credit score improve drastically and also be able to bag effective payment terms in the future.

#4 Monitor your business credit regularly.
Just establishing healthy business credit is not enough; maintaining it is even more important. This is because sometimes credit scores can decline all of a sudden and lenders are always on a look out to adjust or stop terms. Make regular credit monitoring a habit to avoid hiccups that can harm your business.
Don’t allow a credit knowledge gapto ruin the future of your entrepreneurship. To thrive, follow the advice given above and secure your SME India.

"By association with Digikredit Finance Pvt Ltd , an NBFC, which operates under the name  SMEcorner and offers credit to small business owners."

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