Can You Use a Business Line of Credit for Personal Expenses?
Can You Use a Business Line of Credit for Personal Expenses?
Many Australian small business owners and sole traders blur the line between business and personal finances—especially when cash flow is tight. A common question that comes up is whether you can use a business line of credit for personal expenses like rent, groceries, or household bills.
While it may seem convenient, using business credit for personal use can create serious complications. It may lead to tax issues, breach lender agreements, and create financial management problems.
In this guide, we explain what the risks are, why it’s generally discouraged, and what alternatives may better support your financial literacy and long-term stability.
Can you legally use a business line of credit for personal expenses?
Short answer:
It’s generally not illegal in a criminal sense, but it may breach your loan agreement.
Most business line of credit contracts state that funds must be used for business purposes only. If the credit is used for personal expenses, it may be considered a misuse of funds and a breach of contract.
What this may mean in practice
If personal spending appears on a business credit facility, it may result in:
- Breaching your agreement with the lender
- The lender requesting early repayment of the outstanding balance
- Your credit facility being reduced or closed
- Future business or personal lending applications being impacted
Some lenders may not monitor every transaction in real time, but unusual spending patterns can become clear when statements are reviewed during refinancing, hardship applications, or future lending assessments.
Why you shouldn’t use business credit for personal expenses
Tax implications (ATO risks)
This is one of the biggest areas of risk.
Interest on a business line of credit is generally only tax-deductible when the borrowed funds are used for business-related purposes¹. Personal spending typically does not qualify.
If you mix personal and business use, it may create issues such as:
- The ATO denying interest deductions
- Complex record-keeping requirements
- The need to justify which expenses were business-related
- Possible reassessment or penalties if reporting is incorrect²
Even small amounts of personal spending can make it harder to demonstrate correct use of the facility, particularly if records are incomplete.
Legal risks (loss of asset protection)
If you operate through a company structure (Pty Ltd), one benefit is limited liability. Keeping personal and business finances separate may help support that structure.
If finances are heavily mixed, it may weaken the separation between you and your business. In some legal disputes, this could contribute to a court argument that the business was not treated as a separate entity³.
This may increase risk during situations such as:
- Insolvency
- Creditor recovery action
- Legal disputes involving business debts
This isn’t automatic, but separation is generally considered a good financial practice.
Lender consequences
From a lender’s perspective, business credit is assessed and approved based on business needs and business financials.
If personal transactions appear regularly, it may raise concerns about financial management and governance. Potential consequences may include:
- Requests for clarification or documentation
- Reduced credit limits
- Closure of the facility
- Reduced likelihood of approval for future credit
Maintaining clear records and using credit as intended can support stronger lending outcomes long-term.
Financial management problems
Even outside legal or tax concerns, mixing business credit with personal spending often makes financial life harder.
Common issues include:
- More complicated bookkeeping and accounting costs
- Difficulty tracking true business profitability
- Reduced ability to forecast cash flow accurately
- Increased chance of overspending without realising it
- Confusion when preparing BAS, tax returns, or reports
Keeping business and personal finances separate is often a key step toward better financial literacy and stronger long-term planning.
Can you use a personal line of credit for business expenses?
This is the reverse scenario, and the rules are generally different.
A personal line of credit may not restrict spending to personal use, as long as the purpose is lawful and meets the lender’s terms. This means some people may use personal credit to cover business expenses, particularly in early-stage businesses.
This approach is sometimes used by:
- Sole traders
- Startups without long trading history
- New businesses that don’t qualify for business lending yet
Pros
- Potentially faster approval
- Often fewer business documents required
- Based on personal income and credit history
- May avoid business-purpose restrictions
Cons
- Your personal credit score may be impacted
- Business issues may flow into your personal finances
- It may still create accounting complexity
- Tax deductibility may be harder to manage unless structured properly
If you use personal credit for business purposes, it may be worth speaking with an accountant to ensure your record-keeping is clear and compliant.
Related reading:
Personal loan for business use
https://www.credit24.com.au/personal-loans-for-business
Line of credit vs personal loans
Better alternatives to using business credit personally
If you need funds for personal expenses, it is generally safer to use products designed for personal use. This can help reduce confusion and support clearer budgeting.
Personal line of credit
A personal line of credit can offer flexible access to funds for personal expenses, while avoiding business-purpose restrictions.
Learn more:
What is a line of credit?
https://www.credit24.com.au/blog/line-of-credit
How to use a personal line of credit
Personal loan
If you prefer a fixed loan amount and structured repayments, a personal loan may be more suitable.
Learn more:
What is a personal loan?
https://www.credit24.com.au/blog/what-is-a-personal-loan-and-how-does-it-work-a-full-guide
Need personal funding? Meet Credit24
If your expenses are personal, using a personal line of credit or personal loan may help you avoid contract issues, reduce tax and accounting complexity, and improve financial clarity.
Credit24 Personal Line of Credit
- Designed for personal use
- Borrow only what you need
- Credit limits from $500 to $10,000
- No application, monthly, or withdrawal fees
- Interest only on what you use (24–48% p.a.)
- Fast access to funds (minutes for eligible banks)
- Flexible repayments up to 36 months
- No early exit penalties
- Redraw available anytime
- Funds can be transferred using OSKO (where available through your bank)
Key takeaways
- Using a business line of credit for personal expenses may breach your lender agreement
- It may create tax complications and make record-keeping harder
- Mixing finances may increase legal and financial risk in some situations
- It can reduce visibility over true business performance
- A personal line of credit or personal loan is often a cleaner option for personal spending
- Separating business and personal finances is a strong step toward better financial literacy and long-term financial control
Sources
¹ Business interest deductions, Australian Taxation Office
² Keeping business and personal expenses separate, ATO
³ Piercing the corporate veil principles, Australian corporate law commentary
(Authoritative government and legal sources used; screenshots to be added per editorial process.)
Disclaimer
IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839.
The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.
