Business credit cards without personal guarantee are often dreams come true for small business owners. For most small businesses, it’s extremely hard to get this term on a credit card.

A personal guarantee reduces the risk for creditors lending you money. Think of it like co-signing a loan with your company. If you co-sign on an apartment lease and the other person doesn’t make rent, you’re responsible for paying.

The same goes for your business credit card. If it has your personal guarantee, and your company fails to pay debts, you’re personally responsible for paying them.

No personal guarantee

A business credit card with no personal guarantee means you are not personally responsible for your business’s debt. In other words, if your business can’t pay liabilities, creditors can’t come after your personal assets.

You might think your business structure protects your personal assets from company liabilities. This is true in some situations. But, a personal guarantee on a credit card usually applies to you no matter how you structure your business.

• Sole proprietors are considered the same entity as the business, so business owners must pay all business debt. Personal assets are fair game to creditors.
• Together, partners must pay all company debt. If your partner’s assets only cover 30% of the liability, you pay the other 70%. This is true even if you own only half the company.
• Corporation and LLC owners are separate from their businesses. The owners don’t have to use personal money to pay business debts. But, they are almost always liable for credit card debt, and creditors can seize personal assets.

3 steps to getting business credit cards without personal guarantee

Finding a lender willing to extend no personal guarantee to you is difficult, but not impossible. Getting a business credit card with no ties to your personal assets takes a lot of time and planning.

These three steps can help your business get approved with no personal guarantee:

1. Separate yourself from your business

First, make your business a separate entity from yourself. Separate your funds, debts, and legal names.

To do this, you must incorporate or become an LLC. If you are a sole proprietor or partnership, the bank sees your business credit card as a personal loan. In this case, your personal assets can be used to pay the business debt.

2. Build your credit score

There are several forms of credit you can use to establish a strong credit score. If you are careful with spending and diligent with payments, you could set yourself up for a no personal guarantee credit card.

Apply for a business credit card if you don’t already have one. Get a credit card with a low spending limit in your business’s name. Use the credit card on occasion and make sure to pay it on time, every time.

Apply for third-party guaranteed lending, such as an SBA loan, for funding. Setting aside some of the loan money will help you pay the debt on time. You will have to pay taxes on the money set aside, but paying on a loan helps your credit score.

Apply for a credit card from a specific store. Many stores extend a credit card to customers. Because you can only use the credit card at one store, there is often no personal guarantee required. Using store-specific business credit cards without personal guarantee cuts down on personal liability for your total business debt.

3. Prove you can pay back debts

To get a business credit card without personal guarantee, you will need to show creditors a history of your business successfully paying debts. You must also prove you are an established business that makes steady profits.

For a complete picture of your credit history, you will want reports from several business credit bureaus. The reports reflect your ability to pay monthly bills, vendors, and the bank.

Many companies use Dun & Bradstreet (D&B), an organization that reports business financial information. Dun & Bradstreet looks at all your financial history and rates your ability to pay debts. A strong D&B rating gives your business higher credibility when applying for business credit cards without personal guarantee.

Check out this Bento for Business article for more great insights on how to get a no-personal-guarantee business credit card.

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