You will almost always need a personal guarantee (or at least a personal credit check) for a business credit card, unless you’ve already built credit for your business.
Businesses start and fail every day in the U.S. and credit card issuers understandably don’t want to be stuck with the bill. For sole proprietorships and partnerships there is not much you can do to avoid a personal guarantee. True, as the business owner your business credit card may not show up on a your own personal credit report, but the bank will likely look at your personal credit history as the applicant.
Even when the business’s Federal Employer Identification Number (FEIN) is on the application, the card issuer will usually launch a credit check on the applicant. Social security numbers are tied to the FEIN. A bank may use these to help make the decision to approve or deny the application.
To get credit products that are not tied to a personal guarantee, two steps are critical:
- Establish business credit
First, to establish credit as a business, you’ll need a separate business entity.
Incorporation creates a legal separation between the company and the individual. Some people believe that incorporation, by definition, relieves the officers of all legal liability. Unfortunately, this is not true.
In the case of a lawsuit, any good lawyer will name both the company and its principals as defendants in an attempt to assign financial responsibility anywhere they can. In some cases, the legal separation won’t stand up and the individual is held liable. This is a very compelling reason to keep all business and personal transactions completely separate.
Blending personal and business finances can break down the corporate wall. Business owners who want 100% separation are wise to seek credit products that are totally separate from personal credit. Incorporating is a fairly easy task that can be accomplished online. The cost to incorporate and to maintain a corporation varies state by state.
2) Establish Business Credit
Incorporation alone will not allow you to get a credit card without a personal guarantee or personal credit check. Establishing business credit is another task entirely. Depending on the industry, finding companies that extend credit to a business without a personal guarantee may be tough.
A focused business owner must identify suppliers and lenders who report to Dun & Bradstreet or other business credit bureaus and are willing to extend at least a small amount of credit. To stay credible, a business should pay all bills on time or early, and request gradual credit limit increases.
While there are many “business” credit cards on the market today, they do not necessarily report activity to business credit bureaus. Before you apply for a business credit card, check whether the activity will be reported to business credit bureaus. For example, the Capital One Spark cards do report to several business credit bureaus.
Most credit card issuers will want to see about two years of credit history in order to approve a business credit card account.
The Staples Commercial account reports to Dun & Bradstreet, even when it’s opened with a personal guarantee, so long as a DUNS number is provided (any business can get a DUNS number). For businesses that need office supplies, this account is a good option for establishing and building a business credit file.
To learn more about building business credit, read this guide.
Have you been able to get a business credit card without a personal guarantee? How did you do it? What do you use it for? Let us know in the comments below!
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