The two sides of debt – business and personal

Debt is an everyday occurrence once we reach adulthood. From financing our first car, getting a student loan, putting an overseas trip on the credit card, to a home loan, being in debt can seem like a rite of passage.

Yet there’s a substantial difference between normal personal debt and racking up corporate debts that can affect your businesses credit record and its reputation. 

If you’re a director of your business, the line between personal and company debt isn’t as far away as you think. Just as you are personally liable for any health and safety issues in your business, it’s the same with debt.

What exactly is the difference between personal and corporate or company debt?

Personal debt is debt that you are legally responsible for as an individual. Though the name might suggest a single individual, personal debt can actually involve more than one party e.g. you and your partner getting a home loan.

An easy way to think about this is that personal debt is used to fund consumption.

Now, business debt is debt that has been incurred by a company. This can be acquired by an owner, directors, or employees of a business. Although an authorised individual may have incurred the debt, the company can be held liable for this business debt. In a nutshell, business debt is used to fund investment.

What do they have in common?

Acquiring debt can be done in your personal and commercial life. Personally, we may spend beyond our means or circumstances may present large costs that we are unable to pay in the short and medium term.

Businesses may rack up debt for similar reasons, with the more complex addition of the fact they are delivering products or services to customers who don’t pay on time. Whatever business you’re in, you will have spent on overheads – it may be buying stock to sell, or provisions to use in whatever service you are delivering e.g. wood, bricks or product.

The consequences are a bitter pill to swallow:

If you have personal debt, if you don’t pay, your credit score will take a hit, making it difficult to get credit in future. This applies to credit cards, home loans and even things you think are insignificant, e.g. overdrafts.

Business debt is another ball game and can have huge consequences on a business, staff, family - and the business owner’s ability to operate another business in future. It can even lead to bankruptcy.

How to recover personal and business debt:

Guardian Credit Services can help you to recover both personal and business debts owed. 

You may have given a relative or friend a loan to help them through a rough patch or to help them purchase a new car or pay off some debts. That’s a typical personal debt, which can be recovered if you have an agreement drawn up between the two of you. It doesn’t need an invoice, just an agreement. If you have proof of the debt, then we can help you to recover this.

In terms of business debts, providing terms of trade to your clients and debtors is a solid foundation to build a business on, and we encourage this in all business dealings. If you only have an invoice, let us know as we may be able to work with this.

Whether you have outstanding invoices on a personal or business level that are owed to you, Guardian Credit Services can help. Give us a call to talk about your options.

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