Business Identity Theft – Personal Risks for Business Owners and Officers
Business ID theft can turn your business dream into a personal nightmare
As a business owner, officer, director, or key executive, you have significantly increased risks over an average consumer because your personal information, credit, and finances are so closely intertwined with your business. If you are a small business owner, you and your business identity may be virtually one and the same – and anything that impacts your business directly impacts you.
Unfortunately, thanks to business identity theft, there are new unexpected risks to you and your business – risks they don’t teach you about in business school.
Depending upon your capacity and involvement in the business, the size of your business, and the extent of the fraud, some of the additional personal risks that you may potentially face as a business owner, officer, director, or key executive as a result of business ID theft include:
Risk: Inability to Meet Payroll, Tax Obligations, or Pay Bills
Loss of business income, or having money stolen from your business bank account, may leave your business unable to meet payroll, employment, and income taxes, pay business bills, or purchase necessary supplies. As a result, you may find yourself forced to lay off employees, make dramatic cuts, or pay business obligations from your own personal finances or credit cards.
Risk: Personal Liabilities
Most business credit cards, loans, lines of credit, and other accounts require a personal guaranty from one or more of the business owner(s). If your business is unable to make the required payments, you may be held personally liable for the debt.
Business identity thieves often use the owner’s personal information to open new lines of credit, or for the required personal guaranties for new accounts or contracts and large purchases. Fraudulent business accounts and unpaid purchases may be sent to collections, and collectors may attempt to hold you personally liable for the business debt until you can prove that it was fraudulent.
Risk: Negative Credit Reporting
As a guarantor on business credit cards or lines of credit, business debt sent to collections may be negatively reported on your personal credit report as well. In addition, any personal accounts that become late as a result of reduced income from your business may also be reported negatively. This can lead to reduced personal credit limits and higher interest rates on your current credit lines. Negative or derogatory accounts on your personal credit report may make it difficult to obtain new loans, lines of credit, or other financing you may need for your business.
Risk: State and Federal Tax Consequences
Thieves that fraudulently transact business in your business name can generate negative tax consequences with the IRS and state tax agencies, or even state licensing, revenue, and sale tax commissions. Disputing and unraveling these problems in order to escape personal liability can be complex, difficult, and time consuming.
Risk: Loss of Personal Income
When you rely on your business to generate income for you and your family, lost customers, lost suppliers, lost contracts, or time taken away from running your business while trying to dispute and resolve a case of business identity theft means your business is generating less income for you. This may cause you to be unable to pay and meet your own personal financial obligations.
Risk: Business Failure
Many businesses, especially small businesses, operate on thin margins and simply can’t survive significant losses. A loss of thousands or tens of thousands of dollars in cash or goods and services can be devastating. Depending upon the thieves’ actions and the severity of the financial losses, your business may become insolvent and unable to continue to operate – putting your employment, income, credit, and financial future at risk.