Getting A Business Credit Card Without A Personal Guarantee

Kimberly Rotter

Kimberly Rotter | Blog

Apr 03, 2015 | Updated Jan 24, 2017

You will almost always need a personal guarantee 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 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:

  1. Incorporate
  2. Establish business credit

1) Incorporating

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) Establishing Business Credit

Incorporation alone will not lead to business credit card approval. 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 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.

Insider Tip: 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.

Most credit card issuers want to see about two years of credit history in order to approve a business credit card account.

Liability for Business Credit Card Debt

The CARD Act offers protection to owners of consumer credit cards, limiting their liability for fraudulent activity. This does not apply to business accounts. In other words, a business credit card secured on personal credit comes with greater liability.

A sole proprietor is liable for all charges on the business card. In the case of default, a closed derogatory account will be reported to the individual’s personal credit file. In a partnership, all partners are 100% liable for the business debts.

Employee credit cards differ depending on the contract with the card issuer and employer. For a card held by an authorized user, the primary account holder is responsible to the credit card issuer for all charges. A contract between the employer and employee may shift liability, in part or in whole, to the cardholder. Even in large corporations, employees who are issued corporate credit cards normally must at least take responsibility for personal charges on the company card.

Q&A Video: Who Is Liable For Business Card Usage?

Getting A Business Credit Card With Poor Personal Credit

Many successful businesses have been operated by individuals with poor credit. Poor personal credit does not preclude business credit. It just makes it harder to get. If you have poor credit, having a solid business in place is one way you may be able to increase your ability to get credit as a business.

Regardless of the credit standing of the owner, for business credit the most important factors are the:

  1. Business plan
  2. Available cash reserves
  3. Owner investment
  4. A solid business team
  5. Revenues

Entrepreneur magazine suggests that business owners with poor or no credit look beyond business credit cards and bank loans to friends and family, venture capital investors, microlenders, gifts and grants. Fox Business mentions the Merchant Cash Advance, which is a great option for businesses that have healthy, predictable sales. The Small Business Administration (SBA) is another excellent resource, including microloans. SBA offers a few tips here.

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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