Business credit cards and personal guarantees

A business credit card is a useful tool to help with accessing capital and keeping track of business expenses—and may also deliver rewards for spending. When applying for a business credit card, you may be surprised to learn that almost all business credit cards require a personal guarantee.

Keep reading to learn about personal guarantees, when they apply and how to minimize your liability.

What you’ll learn:

• Business credit cards are designed to help businesses with capital and expense tracking but often require personal guarantees from business owners.
• Mitigating personal risk when opening a business line of credit is possible with an effective financial management strategy that includes tracking authorized users and limiting credit usage to only purchases you can afford.

A personal guarantee is a legal promise from a borrower to a lender to repay a business loan or credit obligation if the business can’t. It holds the individual personally liable for the debt, often risking personal assets like savings or property.

Generally, a personal liability clause in your contract should explain your liability level: limited or unlimited.

• Limited personal guarantee: Typically, limited liability means you’ll only be responsible for a set dollar amount of a defaulted account.
• Unlimited personal guarantee: In general, unlimited liability indicates you may be responsible for the full account balance plus any additional fees.

Remember that personal guarantees usually only come into effect if the account is past due or defaulted on.

Personal guarantees help reduce the risk level presented to card issuers. This is why it’s more common to find business credit cards that require a personal guarantee. For example, if a business closes, personal guarantees may help ensure the card issuer still has a chance to recoup its losses on any outstanding balance.

Yes. While many business credit cards require a personal guarantee, there are options that don’t. Some cards may use corporate liability rather than a personal guarantee. Be sure to check your card’s terms, conditions and eligibility requirements to determine how your card works.

Thinking about getting a business credit card? A great way to help ensure success is to minimize your liability. The following steps should help you keep your personal risk low.

1. Only make purchases you can afford. Consider charging only what you can pay in full each month. Keeping your balance low has some benefits, like minimizing interest charges. It can also reduce your personal risk since the account is less likely to default.
2. Look for a card with an introductory APR. Some business credit cards may offer a low or 0% annual percentage rate (APR) for a limited time when you first become a customer. Using a business credit card with a 0% introductory APR may be a smart way to finance purchases that will take several months to pay off, as long as you pay the balance in full before interest begins accruing.
3. Monitor authorized user spending. It’s common for business owners to issue employee cards to key team members to make important purchases. If you do this, keep track of their spending and set a limit on their cards. With multiple people on the account, the balance may quickly exceed what you’d anticipated. Setting authorized user limits can help keep the balance within your budget.

A business card can help business owners track expenses and sometimes even earn rewards on everyday business purchases. But if it requires a personal guarantee, you may be putting personal assets at risk if the business defaults.

There are ways to minimize personal liability. Examples include managing your spending, monitoring employee card use and considering cards with low or 0% introductory APRs.

If you’re ready to take the next step, compare Capital One business cards for the terms and benefits that best suit your business.