You may be thinking about finally opening a business bank account for your small business or startup, to help keep your business finances separate from your personal finances. This can often be a difficult decision to make and you may be wondering what implications having separate business finances will have on your personal credit.
Here, we take a look at some of the factors that come into play when applying for a business bank account and go through just how this decision could affect your personal finances.
Taking the structure of your business into account
One of the biggest deciding factors as to how much your business finances will affect your personal accounts and credit report, is how you have chosen to structure your business.
Whether you can be held personally liable will depend on whether you have chosen to register your small business as a sole trader, or if you have registered as a limited company. Many choose to register as a sole trader, to cut down on endless amounts of paperwork, but even though there may be much more admin involved as a limited company, it could save you some financial headaches further down the line.
As a sole trader, there will be no legal distinction between your personal finances and your business finances. This is where your business could affect your personal credit report. If your business finds itself in debt, you would be held responsible for repaying the debt out of your personal finances and assets.
Do banks take your personal credit into consideration?
Yes and no. Just like applying for a personal account or credit card, there will be some accounts that require a credit check and those that do not.
For example, our very own alternative to a business bank account doesn’t require a credit check. All we need to do is verify your identification and you could be approved for an account in no time. The same applies for other basic business bank accounts offered by high-street banks.
For directors or partners of a limited company it can be a little different. Some banks may require you to pass a personal credit check before being granted a business bank account for your limited company. The best course of action is to get in touch with your bank before applying and ask about the requirements for the account you wish to apply for, as well as performing your own credit check beforehand.
Can your business finances affect your personal credit further down the line?
Once again, this completely depends on how you have chosen to structure your business. For limited companies, your business finances will be separate from your personal, so your business will be left liable for any debt incurred. This means that any costs will be reclaimed from the business finances and assets, instead of your personal finances.
If you are a sole trader, there is a strong possibility your personal credit could be affected, should you face any financial problems within your business. Despite having a business bank account, your personal finances would carry some risk. However, all it takes is for you to treat your business finances like you would your personal. Keep a watchful eye on outgoings and incomings, keep up to date with expenses and receipts and use an accountant or accounting tool, to help you keep all of your business finances under control.
Our business bank account alternative can help you keep your business finances under control, allowing you to effectively manage your outgoings and income, just like a high-street bank account. With no credit check, no account setup fee, no charge for setting up direct debits or bank transfers and many more benefits, why not choose icount for your business banking?