How business debt affects your personal finances

Perhaps you are considering starting up your own business, or you have already established your business but it’s struggling financially. Either way, you are wisely investigating how business debt may affect your personal finances. Whatever the current status of your business, it is useful to know how clumsy debt management can affect your own financial situation.

In This Guide:

What qualifies as business debt?
Who is responsible for business debt?
What should you do if you can’t keep up with your business debt?
What should you do if you are anticipating missing payments, but have not yet missed any?

What qualifies as business debt?

Business borrowing is usually undertaken with growth in mind. However, the business world is fickle and often things do not go to plan. The most common types of business debt include business loans, mortgages (i.e. for office premises), credit cards, stock, and equipment purchase or hire.

Who is responsible for business debt?

It is crucial to know who is responsible for your business debt. This will depend on the type of business you run:

Sole Trader

If you are a sole trader, then you and your business are one and the same, at least from the perspective of your lender. In this case, you are personally responsible for your business debt. Therefore, any late payments or black marks your business develops will likewise damage your personal finances. If your business fails, you will need to file for an IVA or bankruptcy.

Partnership

In this situation, any business debt will be the shared responsibility of you and all your business partners. If the business fails, all partners will be personally responsible, which may lead all or any one of you to file for an IVA or bankruptcy.

Limited Company

In this situation, any loans you take out will be borrowed against the name of the company. You will not be held personally responsible for payments. If the company fails, the company will need to file for administration which may culminate in liquidation of the company’s assets. Nobody’s personal finances will be affected.

What should you do if you can’t keep up with your business debt?

Though it may be embarrassing, if you are struggling to keep up your payments for any of these loans, the first thing you need to do is speak to your lender to see if there is anything you can do to keep your business on track. If you try to ignore it or try and fix it yourself without seeking guidance, while continuing to miss payments, you will end up with a black mark on your business credit profile. If your business borrowing is not already fatal, the build up of black marks will definitely be detrimental.

The bottom line is to seek advice immediately, either from your lender or an external debt management company.

What should you do if you are anticipating missing payments, but have not yet missed any?

Even if you are just anticipating missing payments, it is worth giving your lender a call to see if they can provide guidance. Another option is to source a cheaper deal and switch your business borrowing to a new provider.

Check our online comparisons of business loans, business credit cards and business current accounts in order to reduce your outgoings.