Understand how Personal and Business Credit Intersect

AgWeb ( Avoid the commingling muddle when it comes to your profits and expenses. )

Avoid the commingling muddle when it comes to your profits and expenses.

Imagine this: Due to cash-flow and timing issues, you paid a few bills late one month. The next month, you paid them in full. Yet, several months later, you’re denied credit.

Why? A 30-day late-pay on your personal credit report. That bill you paid late involved a small personal account with a co-op, which reported the delinquency to the credit-reporting agencies. While several of your accounts are your farm’s name, this one was in your name.

“This situation underscores why it’s essential farmers have access to both business and personal credit and to avoid commingling the two,” says Peter Martin, finance and growth consultant with K·Coe Isom, who recently saw this scenario happen to one of his clients. 

Personal Versus Business Credit

Both personal and business credit are evaluations of your creditworthiness. The differences include:

  • Personal credit is based on your personal spending history and is tied to your social security number.
  • Business credit is based on your business’s financial history and is tied to your business’s employer identification number or business tax ID Number. 

While different, the two types of credit are often connected and should monitor both carefully.

“One of the things that can get all muddled up in family farms is personal expenses and the farm-related business expenses,” Julia Woodruff, account officer with AgCredit. “You need to keep those separate with separate accounts.”

Doing so helps limit your risk for both personal and business credit, and it helps you have a clear picture of your farm’s expenses and profits, she says. 

Protect Your Financial Standing

Business credit can also help insulate your personal credit from late payments or heavy debt. “One driver of your personal credit score is the amount of credit you have available versus the amount being used,” Martin says. “Using too much of your available credit can significantly impact your credit score.”

To maximize your business and personal credit, establish business credit through a business lender, he says. In addition to large credit card issuers such as Chase and Capital One, other companies have targeted unsecured business loans and lines of credit, including Kabbage, Lending Club and StreetShares. Research options to find a best fit for your farm.

“Following these steps will streamline and protect your business as well as your personal liability and credit score,” Martin says.

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