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Am I personally responsible for my business credit card?

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Small-business owners can benefit from getting a business credit card as it offers tailored rewards and perks. It is important to comprehend what a personal guarantee means before applying for the most suitable card for your business. Before applying, it is important to know that as an individual, you are responsible for any expenses incurred on the business card. This is a common feature of business cards.

What is a personal guarantee on a business credit card?

The term “personal guarantee” refers to a clause in a credit agreement that outlines your responsibility for the account. If you sign the document, you are entering into a contract with the credit issuer, agreeing that you will use your assets to pay the bill. When searching for a business card, it is important to read the terms and conditions carefully to locate this clause.

The pricing and terms section of the Ink Business Preferred® Credit Card includes a personal guarantee clause. This clause states that if you respond to the offer, you agree to be individually and jointly responsible with the company for paying off all balances on all cards and accounts that are issued with this application and any additional accounts that may be created in the future. If you quit working for the company, you will still be responsible for any outstanding balances on your accounts. As soon as possible, it would be best if you informed us to close the accounts and prevent any further charges.

The displayed clause is significant and should be considered carefully.

Why does a business card require a personal guarantee?

Business credit card issuers often require a personal guarantee because these cards are typically not backed by collateral. If the cardholder defaults on the account, the issuer cannot claim any assets to recoup their losses. With high credit limits, extending credit lines without a guarantee is seen as risky, so a personal guarantee reduces that risk.

If you’re considering getting a business credit card, it’s essential to be aware of the potential risks and use it responsibly. This means only making charges that you know you can pay off and keeping your balance significantly lower than your credit limit.

What happens if I don’t make payments on my business credit card?

If you fail to make payments and your account goes into default, the issuer will hold you responsible for paying back the full amount. This applies even if the charges were for your company’s expenses rather than your personal needs, as you are seen as one entity in this situation.

It’s important to know that using a business credit card can impact your personal credit, depending on the issuer and account. If you don’t make your payments on time with your business credit card, it could hurt your credit score. This is because the issuer usually reports the account information to the three major credit reporting agencies (TransUnion, Experian, and Equifax), which can affect your credit scores, including FICO Score and Vantage Score.

Can you get a business card without a personal guarantee?

If you don’t want to provide a personal guarantee, there are some business credit cards available that don’t require one. However, these cards usually have high eligibility requirements, such as a minimum annual revenue. For instance, the Office Depot® Business Credit Account is only available for corporations that have been in business for over three years and have an annual revenue of more than $5 million.

The Brex 30 Card can only be obtained by corporations and is not offered to sole proprietors or unincorporated partnerships. Brex has specified a set of criteria for qualification on its website, which may include meeting a minimum annual revenue of $1 million, maintaining a certain cash balance, achieving specific investment benchmarks, or having a minimum company size, among other factors.

The bottom line

Don’t be afraid of a personal guarantee when applying for a top business credit card. By signing the credit card agreement, you agree to follow the terms and conditions. Failure to make payments on time can affect your credit score, and the issuer may take action to collect funds if the account becomes seriously delinquent.

If you are responsible and make timely payments while managing your debt, using a business account will give you access to the benefits of a business credit card. This will help you establish and maintain a positive credit history, enhance your business credit, and safeguard your personal credit.

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