There are many good reasons you might want to get it Business Credit Card. For starters, business credit cards are unique Rewards and perks It is designed specifically for business purchases.
However, some business owners are surprised to learn that they can personally be held responsible for the outstanding balances and debts of their business cards. This is because many small business credit cards need to provide personal guarantees to cardholders.
In front of you I’ll apply for a business cardyou need to understand what personal guarantees are and how you, as an individual, are responsible for the balances incurred due to business expenses.
What is a personal guarantee for a business credit card?
Personal guarantee is a clause Credit card contract This outlines your personal responsibility for your account. By signing the document, the issuer agrees that if your business assets are unable to pay the liability, you can be held liable for paying the invoice from your own personal assets. When searching for business cards, look for this clause in the detailed printing of the business card terms and conditions.
for example, Ink BusinessPreferred® Credit Card This personal guarantee clause is listed Pricing and Terminology Section:
What is the difference between personal guarantee and liability for your personal credit card business card?
Once you accept the terms of your personal credit card, you agree that you are responsible for repaying the balance accumulated in your account. The same applies to personal guarantees for business credit cards. If your company becomes insolvent and is unable to pay back the debts in your account, you will be liable to pay back the debts.
The main difference between a business credit card personal guarantee is that you may be offered either limited or unlimited liability. If liability is limited, you will only be liable for the amounts set in your default account. This is typical when the company has multiple owners or partners. Unlimited liability means being liable for your default card and your total balance of interest or fees.
Why do business cards require personal guarantees?
Most of these products are unsecured, so business credit cards have personal guarantees. In other words, there is no business collateral that the issuer will charge if the account defaults. Also, expanding your credit line is dangerous for lenders as business cards can be very high. Personal guarantees reduce that risk.
Do you personally be responsible for your business credit card?
If the terms and conditions of your card include personal guarantees, you may be personally liable for the outstanding debts of your business credit card account. Depending on your card agreement, you may face unlimited liability. Otherwise, your liability may be limited to the amount specified. Additionally, the issuer may report late payments to the Consumer Credit Bureau that may affect your credit score.
How to minimize personal liability
If you are personally responsible for your business credit card, you will want to find a way to minimize the impact that this liability has on your personal credit and savings. Just like your personal cards, you want to keep some tips in mind to maintain a positive credit habit:
- Don’t charge anything you can’t pay: Make sure the fees awarded on your business card are not greater than what you can afford to pay right away or in the near future.
- Monitor for fraud or fraudulent purchases: Business cards usually include a free employee card. If you distribute your cards to employees, you should only trust that you make authorized purchases. There is a greater risk if you are not the only one using your card account.
- Use the intro offer: Many of the best business cards have introductory APRs and welcoming offers. These benefits can help you minimize what you owe or give you a lump sum bonus for your initial spending.
What happens if I can’t make payments with a business credit card?
If you stop making payments and business credit cards Account will be defaultthe issuer may resort to you for full repayment of unpaid items, if the terms of the card include personal guarantees. It doesn’t matter if the fees don’t suit your own needs. Company cards and balances are responsible.
a Business cards can also affect your personal creditsdepending on the publisher and account. In most cases, the publisher will be able to view activities for your business card account. Three major consumer credit reporting agencies: Transunion, Experian, Equifax. Sometimes we only report negative information, but almost all major banks at least report it. In this situation, business cards do not help your personal credit score because no positive behavior is reported, but they can hurt it.
Steps to take if you can’t pay back your business card
If you expect to be having trouble paying business credit card debt, take action early. Below are a few steps that can help you navigate this situation:
- Reduce unnecessary costs: Find a place to do it Reduce the costs of your business Minimize unnecessary spending. Instructs the savings you have obtained to pay off your credit card debt.
- Consider a balance transfer credit card: Balance Transfer Credit Card Existing credit card liabilities (including business card liabilities) can be consolidated into new cards with low or no purpose-built APRs.
- Find out about small business loans: a Small and Medium Business Loans It helps you pay back your business credit card debt. In many cases, you can pay at a lower fee than you would pay by carrying your balance with a business card. Compare the terms of your loan and interest rates to make sure it’s best for your business’s finances and goals.
- Please contact the card issuer: Many card issuers provide it A hard work program This allows you to postpone or delay payments, temporarily lower interest rates, and implement an revised payment plan that suits your current financial situation. It is important to contact the issuer as soon as possible to discuss your options before you miss a payment.
Can credit card companies take legal action against unpaid business credit card debt?
Yes, credit card companies can take legal action against you regarding unpaid business card liabilities. Personal business credit card guarantees will be valid Publisher to sue you Recover their losses from your unpaid business debt. That being said, they usually do so only in extreme circumstances where debt is significantly or delayed.
Can I get a business card without personal guarantee?
If you are uncomfortable with being liable for your business expenses, there are some business credit cards No personal guarantee required. However, these are usually corporate cards and require high annual revenue for qualification.
for example, Brex Card*Sole owners and non-built partnerships are not available. It also makes it difficult for some companies to qualify, as they require an annual revenue of more than $1 million, a minimum of $50,000 linked bank balance, equity investment standards, or minimum company size.
Conclusion
Ultimately, personal guarantees shouldn’t scare you Top Business Credit Cards. When you open your credit card, you will sign an agreement that pledges to treat your account in accordance with the summary terms.
If you are charging but do not make an agreed payment, late payments will negatively affect your credit rating and the issuer may take steps to collect if your account is seriously arrears. However, if you use your business account responsibly with on-time payments and well-managed debt, you can enjoy the positives that you can carry your business cards.
*Information about Brex cards is collected independently by Bankrate.com. Card details have not been reviewed or approved by the card issuer.