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Business Owner Risks

Business Owner Risks | Business Identity Theft

Business Identity Theft - Personal Risks for Business Owners and Officers

Business ID theft can turn your business dream into a personal nightmare

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Business owner risks

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. Also see Business Credit.

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. Also see Business EINs Used in Tax Fraud Schemes.

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.


Learn how to protect your business from business identity theft

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Business Owner Warning:
Personal identity theft protection services may not cover your business

As a business owner, if you have enrolled in a personal identity theft protection program or service, be sure to read the program terms carefully. Do not assume your business is protected.

In the fine print of the terms and conditions, most identity theft services specifically exclude coverage for issues related to your business, including business identity theft and any personal issues caused by fraudulent business debts.

A typical business identity theft / fraud exclusion:
"A covered Stolen Identity Event does not include the theft or unauthorized or illegal use of a subscriber's business name, DBA or any other method of identifying their business activity."


Personal credit reportTools to Protect Your Personal Credit

Don't let business identity thieves damage your personal credit. Learn about tools and resources to protect yourself.

Most entrepreneurs who fall victim to identity theft don't have time to deal with the lengthy process of resolving the situation. And since identity theft often damages or destroys the victim's credit, a company that depends on its owner's credit to operate could end up in a dire situation.

Lynn, Jaqueline. "Small Business Owners Risk Identity Theft" August 1, 2007

The cost that comes with cleaning up the mess is 150% higher (for business owners) than it is for consumers. This is because small business owners typically pay for their own legal fees out of pocket, and because financial institutions do not provide them with zero-liability options for their business. 

Rogers, Kate. "Protecting Business Owners from Identity Fraud,", May 6, 2011

Small business owners are victims of fraud at a rate of 15% more than the general population. Entrepreneurs are most susceptible to existing card fraud, at a 50% higher rate than the average consumer.

"2011 Small Business Owners Identity Fraud Report"
Javelin Strategy & Research

“I had a company that was interested in purchasing us, but they’re not going to do that now. I’m basically looking at bankruptcy because I have very little money to operate on now.”

Krebs, Brian. "N.Y. Firm Faces Bankruptcy from $164,000 E-Banking Loss," February 24, 2010.

"In just a few seconds, 10 years of hard work was going down the drain. I was terrified."

Migoya, David. "Corporate ID thieves mining the store"
The Denver Post, September 23, 2010

Article written and ©Copyright by Michael Barnett. All rights reserved. Published with permission. 

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