1. It can give you a false impression about how the business is really going
It can be difficult to gauge how well (or poorly) your business is going when personal and business finance become intertwined. As hard as it is, your business needs to be able to stand on its own two feet. You may be starting a bad habit for your business if you loan money from your own pocket.
2. The paperwork becomes complex
The myriad of taxation laws can mean that using personal finance to fund your business can make paperwork more complicated. Keeping track of your own money versus the business's money can become tricky. Additionally, you might miss out on claiming the interest as a tax deduction at tax time, if you forget about money lent to the business personally.
3. It can be costly
SME owners may feel the temptation to use their own credit card as a lending institution for their business. Credit card debt is costly, and can add thousands of dollars in interest to a loan. Business owners might be surprised at the amount of options they have available rather than using their own money or credit card. Some solutions that might fit the bill are: invoice financing companies, small business loans, or trade finance.
By David Jackson, CEO of FundX