Key takeaways

  • Making a personal guarantee on a business credit card means you are personally liable to pay off the card, and the issuer can take your personal assets to make card payments if necessary.
  • There are business credit cards that don’t require a personal guarantee, but it’s more difficult to qualify for such cards.
  • In case you don’t make payments on a business credit card that you've personally guaranteed, your credit score could be impacted.

There are lots of good reasons that a small-business owner may want to get a business credit card. For starters, business credit cards offer unique rewards and perks that are specifically designed for small-business owners, many of which can be earned simply by using the card for everyday expenses. But before you apply for the business card, it’s important to understand what a personal guarantee is and how it applies to business credit cards.

A personal guarantee is a standard feature of business cards, so before you apply for one, it’s best to know how you, as an individual, may be liable for any balances incurred for business expenses. That way you can make the most educated decisions for you and your business’ finances.

What is a personal guarantee on a business credit card?

A personal guarantee is a clause in a credit agreement that outlines your liability for the account. When you sign the document, you form a contract with the credit issuer that holds you responsible for paying the bill (out of your own assets). When searching for a business card, you’ll want to look for this clause in the fine print, or the business card’s terms and conditions.

For example, the Ink Business Preferred® Credit Card has the personal guarantee clause listed in the Pricing & Terms section: “Individual and Company Liability: You understand that by responding to this offer you agree to be personally responsible, both individually and jointly with the Company, for payment of all balances incurred on all cards and accounts issued pursuant to this application now or whenever such additional accounts may be established in the future. You understand that if you leave the employment of the Company, you will continue to be responsible for the outstanding balances on the accounts. You must notify us immediately to close the accounts and prevent further usage.”

Why does a business card require a personal guarantee?

Business credit card issuers include a personal guarantee because most of these products are unsecured. In other words, there is no collateral for the issuer to claim if the account goes into default. And since credit lines on business cards can be very high, extending the credit lines can be risky for the lender. A personal guarantee lowers that risk.

So, if you’re getting a business credit card, you’ll need to be comfortable with this aspect 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.

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

In the event that you stop making payments and the business credit card account goes into default, the issuer can (and will) turn to you for total repayment of what’s owed. It doesn’t matter that the charges weren’t for your own needs but for your company’s expenses. You’re considered one and the same for this purpose.

Also, be aware that a business card can affect your personal credit, depending on the issuer and account. In most cases, the issuer will send the account information to the three major credit reporting agencies: TransUnion, Experian and Equifax.

Consequently, that account will be factored into your credit scores, such as FICO Score and VantageScore. This means not keeping up with payments on your business credit card could negatively impact your credit score.

Can you get a business card without a personal guarantee?

If you’re uncomfortable with a personal guarantee, there are a few business credit cards that do not require a personal guarantee. Business credit cards that don’t require a personal guarantee typically require high annual revenues to qualify instead. For example, the Office Depot® Business Credit Account* requires corporations to be in business for more than three years with more than $5 million in annual revenue.

Then there’s the Brex 30 Card, which is not available to sole proprietors or unincorporated partnerships. Further, Brex outlines a list of eligibility requirements on its website. Requirements may include meeting $1 million in annual revenue, a minimum cash balance, investment criteria or a minimum company size, among others.

The bottom line

In the end, a personal guarantee shouldn’t scare you off a top business credit card. When you open any credit card, you’ll sign a contract where you’ll pledge to treat the account according to the terms outlined. If you charge but do not make your payments as agreed, late payments will negatively affect your credit rating, and the issuer can take steps to collect if your account goes seriously delinquent.

But if you use a business account responsibly — with on-time payments and well-managed debt — you will enjoy all of the great aspects of a business credit card. You’ll create and sustain a positive credit history and build your business credit, all while protecting your personal credit.

 *All information about the Office Depot® Business Credit Account has been collected independently by Bankrate and has not been reviewed or approved by the issuer.