Differences between Personal and Business Credit
Credit is the common way out for most people in their financially difficult situations. These could be either business related or personal. Financial institutions have designed programs to bail out the customers from their financial ruts. The credit terms for business and personal matters are completely different. Business credits are nowadays also provided by the financial institutions through credit cards for the SMEs (small & medium sized enterprises). These can be considered as business loans for either starting or maintaining a decent momentum of businesses. While personal credit through either credit cards or otherwise can be utilized for paying off personal liabilities or managing the funds and buying essential commodities with an eye on returning it through sure shot earnings in near future.
Difference between Business & Personal Credit:
- Liability in case of any default with respect to business credit lies with the company or the enterprise, but with personal credit the person himself is liable to fulfill the amount due as per the conditions of the lender, in case of a default.
- Personal belongings can be attached if a person fails to fulfill the contractual commitment of the lender in due course and in case of business credit belongings of the enterprise can be attached.
- There is a provision of stock pledge that can be served as a surety towards the credit where the company assigns the part of its shares to the lender under the contract that in case the enterprise fails to return the amount, the lender wrests the ownership of the said stock and can sell or auction them to retrieve his amount. But in case of personal credit such a situation is very rare, only in case of home loan or any bigger amount that the person intends to lend is considered as more than his income suggests that he may repay, only then can the lender ask for a surety kept in his possession.
- Potential risks involved in business credit are more as the repayment is more often than not based on the clients' payment in return to the service or product sold. If in any case the payment is delayed the installment due to the lender also gets delayed resulting in either default or heavy interest is levied on them. Personal loan or credit amounts to a small part of the income in regards to the amount of installment that can be siphoned out from the salary or in any case be arranged at short notice.
- Business credit usually runs for large periods and have entirely different sets of rules and payment, the arrangement is either contractual or otherwise legally bound with a clause dedicated to exit policy, whereas personal credit are at times based on mutual trusts among the parties or if legally bound, are for a small duration of time.
A word of caution for the people interested in business credit should regularly monitor their credit reports, and never ever attach their personal assets with that of the enterprise to secure a credit or a loan. Credits either business related or personal are great facilitator for solving your financial worries but one should always be careful with the terms and the repayments.
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