How can I use my lines of credit or loans?

Can I use business LOC's for personal reasons or personal LOC's for business reasons?

You should keep your business financials separate from your personal financials. By mixing them, you open yourself to scrutiny by the IRS on your personal finances as the lines are blurred and you are likely to face significant headaches plus possible fines and penalties. This is especially so when using business lines for personal reasons. One possible outcome is that you open yourself to business expenses being recategorized as personal expenses which is a major source of penalties in addition to increased tax liability.

If you are to blend them at all, it is more justifiable to use personal debt for business expenses as that can largely be seen as a temporary owner contribution and is liable to less scrutiny - however you need to check with your bank's rules as they will often have disclaimers that the funds are not allowed to be used for business purposes. If the bank were to find out, there could be penalties from them as well.

Ultimately, the chance is low that any mixing would be found, however it is best practice and best for your protection to keep them separate.


What about when I incorporate? Is the sole prop account a personal account now since it's no longer tied to a business EIN?

Since technically your Sole Proprietorship is an extension of your person, yes, that credit account will be considered a personal account moving forward. However, similar to using a personal account for business purposes, you will need to refer to the small print on your credit contract to make sure that the Sole Prop business credit account does not prohibit the funds to be used for personal reasons.

The best practice is to close this credit account and open a new personal one to ensure proper compliance.

Here is an article on the topic if you want to dig father!