Contractors' Questions: Should I use personal cash to prop up my Limited Company?

Contractor's Question: Is any degree of propping up a business with personal finance acceptable? I've read advice to the contrary, but my financing options for my business, a limited company, are few and the 'propping up' from my personal finances wouldn't be for too long.

Expert's Answer: Possibly some degree of propping up your business with your personal finances is acceptable if you are looking to bridge a short-term funding gap with this one injection to help company cash flow. The problem, however, is that a lot of our clients always think it's a short term problem they have, but our evidence is that too often it's not, and the business may need to cease trading.

The worst case scenario if you mix your two separate finance streams is right of set off from the banks, which could lead to the closure of your business and personal accounts, assuming your are with the same bank for both personal and business banking. This action could result in you being unable to access funds or to continue trading. Set off in this instance refers to the bank, where the bank will raid the accounts it holds for you to pay off debts you have with that same bank.

Despite this consequence, we are still seeing a high number of callers to our advice phone-line for the self-employed supporting their business with personal borrowing, and there is unfortunately no indication that we will see a reduction in the near future.

The expert was Geoff Waugh, a debt advisor for the self-employed at the Consumer Credit Counselling Service.

Sunday 13th Jun 2010
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