Business credit is usually an essential part of the operation for most companies. Finding the right business credit cards and lines of credit, of course, takes a little bit of work. The biggest difference in a business loan is that you won’t want to use personal collateral to secure credit for your company. Otherwise, your personal assets will be on the line if your business doesn’t do well. So, what can you do?
Unfortunately, the market for business credit cards with no personal guarantee is very small. And the ones that do exist are generally geared toward large businesses and established companies that have proven substantial credit history. Of course, there are other things that you can do, including looking for a card that won’t report to consumer bureaus as long as the account is in good standing.
Let’s talk more about what a personal guarantee is and how to find the right business credit card.
Essentially, a personal guarantee designates that you will be personally responsible for paying the bill if your business can’t afford it. Many small business credit cards are offered without a secured deposit, which is where a personal guarantee comes into play. This gives the card issuer a chance to protect themselves in the event that the business ends up unable to pay its bills.
If your business does default on a business credit card or loan that includes a personal guarantee, it could show up on your consumer credit report under the delinquent accounts. That way, you are personally responsible for the money, in addition to the business, so the creditor has two options for how to proceed when a business can’t pay.
It’s all about securing the risk for the card issuer. They want to help businesses out, but they have little to prove that the business will be worthy of repayment. In the case of startups and SMBs, a personal guarantee might be the only way a creditor feels safe to lend money at first. Therefore, it’s rare to find cards that don’t require this unless you’re an enterprise-level corporation that’s got decades of proven business success, for example.
You probably also don’t know that even when you make timely payments, you could still see an impact on your consumer credit from a business credit card. The card issuer might decide to pull your consumer reports when you first apply for a card and an inquiry could even knock a few points off your scores.
Some businesses will report all ongoing activity to consumer credit bureaus. If you have a high balance on your business credit lines or cards, it could impact your personal credit by adding to your credit utilization ratio.
Keep in mind that every business credit card company will have its own policies regarding consumer reporting and personal responsibility, so you’ll need to check before you apply. For example, as of 2021, American Express said it only reports default accounts to personal credit bureaus and Chase only reports on business accounts that are over 60 days delinquent. These rules are also subject to change, so make sure that you know what you’re agreeing to.
Ultimately, you’ll have to weigh the options and see what kind of business credit options you have. A personal guarantee may be inevitable, but you can at least have some control over the other aspects of your business credit choices. Here are some tips to help you decide.
These are just a few of the things to keep in mind when you’re in the market for the right business credit card. You might not be able to get away from the personal guarantee, but you can still get something out of it besides credit if you do your homework.
Running a business is a full-time job in and of itself. The last thing you need is more on your plate. While you’re researching your business credit options, who’s answering the phones? If you partner with the virtual receptionists at Smith.ai, you’ll never have to ask that question again. And, in addition to our 24/7 answering service, we also assist with lead intake, appointment scheduling, and even live website chat.
Plus, we’ll create a strategy to help you manage it all, no matter what your needs may be. That way, you can focus on the business at hand while we focus on bringing in the business.
To learn more, schedule a consultation to discuss what the virtual receptionists at Smith.ai can do for your business. You can also reach us at firstname.lastname@example.org or (650) 727-6484.
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