Personal business loans typically have fixed interest rates and fixed loan terms averaging 12 to 60 months Business owners are true fans of their work. To support their projects, people spend all savings, take loans, and neglect personal life. Indeed, we know plenty of “stories of success” about such hard-workers. But does this method really work?
Mixing private money and assets, you face more risks than benefits. See why you should separate these two spheres, and how to do that smartly.
Never Mix Personal Finances and Assets: Here’s Why
Personal business loans are two separate spheres that should mix with each other. Even a small project has its savings and expenses, conducts financial operations like loans and investments.
However, people often confuse these two branches and use them all at once. To start or extend a small startup, they take personal business loans or spend their own money to save the enterprise. Such an approach seems easy for the first time – why should you maintain two budgets? In truth, you can face unpleasant consequences in difficulties in a long-term perspective:
You pay them either as an American citizen and an enterprise owner. All your debts, transactions, and other financial operations are taxed depending on the legislation norms.
Using assets to cover your own needs or using savings for the venture, you mix documentation, and risk of getting higher taxes.
- Difficult Loan Approval
Both you and your venture have credit scores and history – this number determines which credits you can take at the moment. Thus, inexperienced users often take personal loans for their projects. As a consequence, you ruin both credit scores and damage your project.
- Income Calculation
Businessmen survived a hard time in 2020. Owners used all of their savings just to rescue the venture. Doing this on a daily basis, you cannot fully realize the income from the project.
It’s getting harder to calculate how much you spent and earned. As a consequence, you may run an unprofitable venture for years until realizing its true cost.
5 Strategies to Sort Personal and Business Money
# 1 Use Relevant Type of Loan
It’s the first step to build a healthy financial environment. If you need support for your daily life, use instant payday loans or installment options, and turn to business credits for your venture.
|Personal loan||Business loan|
|Purposes||private needs||enterprise expenses|
|The borrower||private body||enterprise|
|The average interest rate||9,41%||4,8% at national banks and 42% at private companies|
|Types||Secured and unsecuredPayday and installmentcar, divorce and marriage options, mortgage.||secured and unsecured|
# 2 Pay Yourself a Salary
Treat yourself as a worker and establish regular wages. This way you’ll clearly see the real income, and feel the result of the work.
Imagine yourself asking your employees to give their money for enterprise development. Nonsense, isn’t it?
Learn to respect your personal finances and use them for family and daily needs.
# 3 Get a Specialised Credit Card and Bank Account
Enterprise exists separately from its owner, as well as its accounts and transactions.
In 2018, Visa researched its customers’ preferences. They discovered that 71% of small business owners use business credit cards instead of ordinary types.
These cards have several advantages:
- Offer special perks like cashback in specialized shops (for example, equipment stores)
- Give bonuses to new customers;
- Provide 0% interest for the short period. With proper use, you can maintain low rates.
Bank accounts for entrepreneurs also offer benefits over usual ones:
- Constant support. Special helplines, advisors, and financial experts may consult the user concerning transactions, deposits, and other operations.
- Lower fees for transactions. It’s an essential measure in e-commerce, customer services, and other branches connected with cash flows.
Sure, these options require higher interest – at least, the bank operates large sums here. But for a successful venture, the difference won’t make much sense.
# 4 Don’t Confuse Yourself and Your Work
It’s rather a psychological factor, but separating your individuality and firm needs is essential for a healthy mindset and lifestyle.
“Don’t confuse having a career with having a life”
— Hillary Clinton said.
Indeed, we often associate our personality and wellness with how the enterprise is going: put all our money and efforts into the work, blame ourselves for small mistakes.
Changing your mind is difficult. Try these things:
- Allow yourself more free time, try new activities and spend money with family.
- Avoid working from home. At least, have a special place for papers and PC, and don’t even think about your project during your free time.
- Most businessmen visit therapists to sort things out and create boundaries between life and work.
#5 Keep Separate Records
After you’ve divided two spheres among different accounts and cards, learn to manage them. Budgeting will prevent you from a critical station, where there is no other way except for using additional sources of income.
- Count the total monthly income in both fields.
- Track all expenses during the month. Analyzing them, you’ll see the main objects of expenditure.
- Find ways to save and economize on unnecessary things.
- Forecast large outgoings and make savings to the two separate emergency funds. This way you’ll avoid mixing two cash flows.
- Make savings either for your projects and private purposes. The best variant is to know for sure what you save for: summer trip or new office equipment, accommodation or a new warehouse.
- Manage debts, taken either for your project and private demands. Try no to miss payments and be responsible while borrowing – remember that your reputation as an entrepreneur influences your daily life, and vice versa.
Entrepreneurship requires responsibility and a smart approach to your cash flows. Optimization of financial processes helps to maximize the income and avoid confusion between private life and work.