Am I personally responsible for my business credit card?

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Dear Business Banter,

Why am I responsible for debt on my business credit cards when the debt was not for my own use but for my business? What is the point of a business card then? – Jason

Dear Jason,

There are plenty of compelling reasons for a small business owner to get a business credit card—and I’ll get to what they are in a moment—but you do bring up an important point: the personal guarantee.

What is a personal guarantee?

The personal guarantee is a standard feature among nearly all of these products. Anyone applying for a business card should be aware of it before signing the agreement. Interestingly, some people who get a business credit card are surprised to learn that they are personally liable for the balance due. Yet is clearly spelled out in the terms. The language is usually something like this, from Navy Federal Credit Union (NFCU):

“I agree to pay NFCU the amount of all debt, fees, finance charges, charges, purchases, or cash advances incurred or owed by, for, or assessed to the Business (“Business Debt”) now or in the future that I or anyone authorized to use this account make(s) using the Business credit card or any other access device provided. Each owner, member, or all partners, as applicable, is/ are required to guarantee payment of all obligations under the Business Credit Card Agreement.” 

As you can see, this is a serious clause. If you go forward with the application, you will be personally on the hook for the payments. In the event that you falter and the account goes into default, the issuer can (and will) turn to you for total repayment. It wouldn’t matter that the charges weren’t for your individual expenses but for your venture—because you’re considered one and the same for this purpose.

Why does a business credit card require a personal guarantee?

The reason business credit card issuers include a personal guarantee is that most of these products are unsecured. There is no collateral for the issuer to claim if the account goes into default. Since credit lines on business cards can be very high, extending the credit lines is risky. The personal guarantee lowers that risk.

Therefore, if you’re getting a business credit card you need to be comfortable with this aspect of card ownership, and use your business card very carefully. Only charge when you’re sure you can make the payments, and try to keep the balance well below the credit limit. Also be aware that, depending on the issuer and account, a business credit card can affect your personal credit history.

4 great reasons to get a business credit card

So why bother? Well, when you get the right card for you and your business, you will come out ahead, financially and time-wise. Here are five great reasons to get a business credit card:

1. Capital

Very few small business owners have enough available cash to manage all their expenses. Maybe you need to purchase $10,000 worth of equipment right away but you don’t have the money at hand and would like a few months to cover the cost. A business credit card will give you valuable payment flexibility.

2. Rewards

Almost all business credit cards are rich with rewards. As you charge, you’ll earn. Just one example is The Blue Business® Plus Credit Card from American Express card, where you would earn 2X points on all eligible purchases up to $50,000 per calendar year, then 1X points after that. If you did charge $50,000, the cash rewards would be a net $1,000 in your pocket—assuming you paid the balance off every month so interest fees aren’t added.

3. Sign-up bonus

The welcome bonuses for many of these cards can be huge. For example, the Ink Business Preferred® Credit Card card will give you 100,000 bonus points after spending $15,000 on purchases in the first three months. That equals $1,000 in cash back or $1,250 if you redeem for travel through Chase Ultimate Rewards®.

4. Organization

It is always smart to separate your business expenses from your personal charges. When they’re all on a business credit card, you can easily review your business costs for tracking purposes, which will make accounting and tax preparation much simpler.

Can you get a business credit card without a personal guarantee?

If you are really uncomfortable with the personal guarantee, there are a few business credit cards that do not require a personal guarantee. They tend to have other requirements, though.

For example, the Brex Corporate Card for Startups has a high credit limit and excellent rewards program, but it’s not available to sole proprietors or unincorporated partnerships. Other business credit cards that don’t need a personal guarantee do require very high annual revenues to qualify instead, such as the Shell Small Business Card, which expects revenues to be at least $1 million, and the Office Depot OfficeMax Business Credit Card that expects a minimum of $5 million annual revenue.

In the end, the personal guarantee shouldn’t scare you off a business credit card. These cards are tools like any other—and with attention, can be used to build a positive future!

The information about the Brex Corporate Card for Startups, Shell Small Business Card and Office Depot OfficeMax Business Credit Card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuers.

Written by
Erica Sandberg
Credit And Money Management Expert Contributor
Erica Sandberg is a credit and money management expert who began her career at Consumer Credit Counseling Service (CCCS). There, she helped individuals and families overcome their debt issues and developed budgets, then transitioned into the agency’s primary media spokesperson.
Reviewed by
Credit Card Reviews Editor