There are numerous reasons business owners might sign up for a credit card, and their motivation often extends far past the potential for rewards. Many business owners pick up a dedicated business credit card in order to keep business expenses separate for tax purposes, after all. Some also get a business credit card they can use as a line of credit when cash flow is tight.
Business credit cards also help business owners build business credit and their business credit scores, which is important for those who take out another business loan later on.
But, you can’t necessarily pick up a credit card for your business alone, and in fact, most business credit cards require a personal guarantee.
What is a personal guarantee?
A personal guarantee is an agreement you make to repay the balance on your business credit card if your business cannot. This means you’re on the hook for all charges racked up on your card—plus interest charges and fees—even if your business fails.
Why do some business cards require a personal guarantee?
To understand why most business credit cards require a personal guarantee, you only need to remember that the bulk of business credit cards are not secured with collateral. In other words, most business credit cards are unsecured.
Without some sort of collateral requirement, business credit cards would otherwise be seen as risky to the lender—especially if your business is new. But with a personal guarantee, both the business owner and the business itself can be held liable for outstanding balances.
How do personal guarantees work?
Personal guarantees are an agreement between the cardholder (business owner) and card issuer that says the individual opening the account agrees to pay off all balances no matter what. Personal guarantees can be required for business credit cards as well as small business loans. Small Business Administration (SBA) loans even require business owners with at least 20 percent stake in their company to offer an unconditional personal guarantee on the entire loan amount.
Generally speaking, business owners don’t always prefer personal guarantees. It’s easy to see why since, if they default on their business debts, a personal guarantee requires them to pay anyway. If they do not personally repay the debt, then the card issuer could go after their personal assets. Since the business owner agreed to the debt personally, the way they structure their business cannot even help them in this situation.
How to tell if a business credit card requires a personal guarantee
When you apply for a business credit card, you’ll fill out an application with your business information and all personal information, like your full name, birth date, address and Social Security number. You’ll also read through disclosures and agree to them as a condition of your application.
In these disclosures, you may be asked to agree to give a personal guarantee for all charges on your business credit card. Here’s an example of the personal guarantee language in the Ink Business Preferred® Credit Card from Chase:
“I am liable, both individually and jointly with the Company, for payment of all balances on any account opened pursuant to this application.”
In the instance where a business credit card does not require a personal guarantee, this type of language won’t be listed in the application.
Should you accept a personal guarantee for your business card?
One major benefit of accepting a personal guarantee is the fact that this opens the door to a much broader range of cards. In fact, the best business credit cards available today mostly require a personal guarantee, yet they offer the chance to earn lucrative rewards and even sign-up bonuses worth $1,000 or more.
Also, note that a personal guarantee will only go awry if you stop making payments on your business credit card. If your business is in good financial shape and you project a profitable and stable future, then you might not need to worry.
Business credit cards that don’t require a personal guarantee
While few and far between, there are some no-personal-guarantee business credit cards. Cards that fall into this category tend to be corporate cards geared to larger organizations, yet some store cards for business also fit the bill.
The best business credit cards with no personal guarantee let you separate business and personal spending, although they are somewhat limited in terms of rewards and cardholder benefits. Some top options include the following:
Sam’s Club® Business Credit Card
The Sam’s Club® Business Credit Card lets small business owners access a line of credit without a personal guarantee or an annual fee. This card allows you to charge purchases at Sam’s Club and Walmart locations worldwide, and it also doubles as your membership card. You do need to be a paid Sam’s Club member to apply.
Shell Small Business Card
The Shell Small Business Card is another store credit card, which means you can only use it at Shell locations (and participating Jiffy Lube locations). This card doesn’t charge an annual fee, and you can benefit from rebates on gas purchases. You can also get cards for employees that let you set limits on what they can buy and how much they can spend.
Brex Corporate Card for Startups
The Brex Corporate Card for Startups promises higher credit limits and no personal guarantee. You won’t pay an annual fee or any hidden fees, and you can earn 7X points on ride-sharing with Uber or Lyft, 4X points on Brex Travel, 3X points at restaurants, 2X points on recurring software purchases and 1X points on all other purchases. You can also benefit from unique cash management tools.
The bottom line
While there are no personal guarantee business credit cards, they are extremely limited and don’t always have the best perks. By and large, you’ll find a much broader selection of premium business credit cards if you accept a personal guarantee.
With that in mind, you should weigh the pros and cons of personal guarantees and compare multiple business credit card options before you decide. At the end of the day, you shouldn’t put your own finances on the line if you’re not 100 percent sure.