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COVID Forcing Small Businesses to Address Privacy Issues

By Joanne Cleaver

One of the first things Stephanie Genkin did as a new certified financial planner was establish her business-financial accounts separate from her personal accounts. 

That’s a proactive step she fears some last-minute entrepreneurs might overlook in the scramble to earn extra income to get through the economic crisis induced by the coronavirus pandemic. 

“No matter what deal you get for your personal finances, don’t mix that with business,” the Brooklyn-based planner told Digital Privacy News.

That goes for credit cards, bank accounts and, currently, loans through U.S. government programs intended to aid households and small businesses.

“I see the temptation on gig work, but it will be a very slippery road back if you keep mixing business and personal credit,” Genkin said. 

In normal times, using personal credit cards and bank accounts for business purposes, and vice-versa, incites tax issues and potential personal and corporate liability, financial advisers who work with small businesses told Digital Privacy News.

“No matter what deal you get for your personal finances, don’t mix that with business.”

Stephanie Genkin, financial planner, Brooklyn, N.Y.

But now, with entrepreneurs’ household finances under pressure as business income slows because of COVID-19, maintaining strict barriers between the two has become even more important.

Lenders look at the credit history of the business and its owner, so entrepreneurs cannot count on privacy on either side, advisers said. 

“If you use a personal credit card or a personal line of credit for the business, it opens you up to liability,” said Kelly K. Welter, founder of the Keefer Welter CPAs firm in Las Vegas.

“If something goes bad with the business, the creditors will come after you because you used a personal card — or they’ll go after you if you personally guaranteed a small-business loan,” 

Federal Loan Programs

Federal loan programs, including the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) do not require personal guarantees, Welter said, but they do have strict guidelines on how the funds can be used, especially to qualify for forgiveness.

That is in contrast with ongoing federally guaranteed small-business loans, tapped through commercial banks, which typically do require personal guarantees, invoking personal credit checks of business owners.

4.9 Million Firms Aided

The U.S. Small Business Administration (SBA) and the Treasury Department said earlier this month that 4.9 million business borrowers had received PPP loans. Access to the program has been erratic, as rules have evolved even as Congress approved additional funds.

“If something goes bad with the business, the creditors will come after you because you used a personal card.”

Kelly K. Welter, Keefer Welter CPAs, Las Vegas.

In addition, the SBA said that the $20 billion EIDL emergency funding had been fully dispersed to small companies, nonprofits and agricultural businesses.

“For small and micro businesses, the separation of business and personal credit is tricky because you are the business,” Lotika Pai, a managing director at the Women’s Business Development Center in Chicago, told Digital Privacy News. 

The confusion is understandable, she said, because personal creditworthiness is summarized in a credit score, but no corresponding single-number score exists for small-business creditworthiness.

The owner’s personal credit track record becomes the best indicator of how reliably that owner will repay business loans, Pai said. 

Thinking Ahead

Though it takes extra effort for small-business owners and the self-employed to keep their personal and business credit identities separate, doing so now will minimize business and personal-credit complications in the future, she added.

Business owners with faltering income, however, need to negotiate forbearance for their business credit cards because the business cards will affect the credit history of the operation and the owner, Pai added.

“Deferments and forbearance look much better on your credit report than late payments,” she told Digital Privacy News.

“For small and micro businesses, the separation of business and personal credit is tricky because you are the business.”

Lotika Pai, Women’s Business Development Center, Chicago.

Business owners also should try to negotiate lower interest rates on business loans, Pai advised, and should keep meticulous records on how they spent any federal economic-assistance loans — especially if they used money to pay their own salaries. 

Credit protection is a top priority of the federal programs, she noted.

“Especially with the CARES Act, the government is trying to take steps to be sure that relief is provided to build credit,” Pai told Digital Privacy News. “Credit scores have (long-term) implications for access to business capital.” 

Joanne Cleaver is a business writer in Charlotte, N.C.

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