Business credit cards and personal guarantees

A business credit card is a useful tool to help with working capital and keeping records of business expenses. These cards may also deliver rewards on your spending and help your business build credit. When applying for a business credit card, like a Capital One Spark Business card, you may be surprised to learn that almost all business credit cards require a personal guarantee that all charges will be paid.

If you're unsure about having a personal guarantee, this article will help you understand what they are, when they apply, how to minimize your personal liability, and the options available at Capital One. For those who want a business credit card with no personal guarantee (to limit personal liability), a Capital One corporate card may be a viable option.

Personal guarantees allow card issuers to seek outstanding balances from the guaranteeing individual if the business account becomes delinquent. There should be a personal liability clause in your contract that explains your liability level: limited or unlimited. Limited liability usually means you'll only be responsible for a set dollar amount of a defaulted account. Unlimited liability indicates you may be responsible for the full account balance, plus any additional fees. Keep in mind 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 the card issuer, which is why it's more common to find business credit cards that require a personal guarantee. They may help mitigate risk for the card issuer by encouraging borrowers to be cautious and by ensuring they can collect the balance due if the business can't pay. Opening a business bank account before applying for a business credit card can also help establish a financial foundation, showing the issuer that you manage your business finances responsibly. If a business closes, personal guarantees may help ensure the card issuer still has a chance to recoup its losses on any outstanding balance.

Minimizing personal liability on a business credit card usually involves strategy and financial management. The following steps should help you keep your personal risk low.

1. Only make purchases you know you can afford. Consider charging only what you can pay in full each month. Keeping your balance low has some perks, like minimizing interest charges. This can also reduce your personal risk, since the account is less likely to default. 

2. Consider using 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.

Capital One's corporate payment solutions include the One Card, which uses corporate liability rather than a personal guarantee. Because of this, the eligibility requirements are different from those of Capital One Spark Business cards. Reach out to see if your business qualifies for the One Card, which offers unlimited cash back rewards, real-time spend controls and more.

Capital One Business cards offer terms and benefits to suit a range of needs. To find one that fits your business, consider the following: 

• Do you prefer cash back or travel rewards? 
• Do you typically pay in full or carry a balance each month? 
• Do you have an established credit history or are you just starting out?

Every Spark Business card comes with business-grade benefits like free employee cards, itemized annual spending summaries, virtual card numbers and more.