Everything You Need To Know About Business Credit Cards

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Most new small business owners have a hard time obtaining business credit cards that do not require a personal guarantee.

A personal guarantor serves as assurance from a borrower that he or she can and will pay his or her debts when they’re due. Personal guarantors mitigate this risk, which is why most credit card issuers require them.

Here is everything you need to know about business credit cards from SMBs and personal guarantees to personal guarantees and risk mitigation.

SMBs and credit cards

Right now, we’re in the midst of the COVID-19 pandemic and some companies might need access to funding. For SMBs to address unexpected emergencies, an unsecured business credit card could be a potential solution. 

Unsecured business credit cards do not require a guarantor. The important thing to remember is that business owners should always separate their personal and business credit cards. 

SMBs and personal guarantees

Lending institutions use personal guarantees to mitigate their risk in providing financial assistance to small and medium-sized businesses that don’t have enough funds to support their growth. Most owners of these small-scale companies don’t have a good enough credit history for lending institutions to lend them money. 

In the world of business, a credit card that’s specifically designed to support business operations requires its owner to guarantee the debt on the card personally. This means that the business credit card owner is personally responsible for paying off the card’s debts if a business is unable to.

Mitigating lenders’ risk

We know that the effects of the coronavirus pandemic have been debilitating to small businesses in the U.S., leaving hundreds of thousands of permanent closures in its wake. However, prior to the pandemic — and over the past 25 years — 7-9% of employer firms (one in 12 businesses) closed every year

This ongoing closure rate has made public and private lenders and credit card issuers more hesitant to release substantial funding to many startups and small business owners. Especially if they exhibit the following: 

  • A lack of financial records. 
  • Zero collateral. 
  • Zero industry experience. 
  • Weak business performance.

Business credit card without a personal guarantor

Sometimes, entrepreneurs can make do with their personal credit cards, savings, and investments from family and friends to keep their business afloat. And, it is possible for SMBs to get a business credit card without a guarantor

Lenders use different metrics to check before they release a credit card for your business. Depending on your company’s reliability in terms of annual sales growth and length of operations, business owners won’t have a hard time getting approved for a credit card.

Small company owners who want to get approved for a business credit card could provide their personal credit history and use it as the lender’s reference. Try negotiating your way out of a personal guarantee by showing the following: 

  • Your bank statements. 
  • Payment history. 
  • Debt-to-credit ratio. 

Do your own research 

Some credit card issuers will waive a personal guarantee but will then demand that you meet alternative requirements in terms of revenue, number of employees, or the amount of money currently in your company’s bank account.

Before applying for a credit card issuer, make sure to carefully explore your options and check which banks or private institutions can help you carry a business credit card with no personal guarantee. That way, you can get the financial support you need for your business without putting your personal assets at risk.

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