For businesses with variable cash flow, a business credit card can be an essential tool for managing working capital, meeting unexpected expenses and earning rewards. But it’s important to remember that the majority of business credit cards are personally guaranteed. That means you, as a business owner, will be liable for any outstanding debts you incur, even if the money was used in a business context.
If you're running a business and looking for a business credit card, there’s a strong chance that your lender will require you to sign a personal guarantee to get approved. While this isn’t an issue in itself – many financial products require one – it should influence how you use your credit card.
Here we’ll look at how personal guarantees work, explore alternatives, and provide context on what happens if you can’t pay off your business credit card.
What is a personal guarantee on a business credit card?
A personal guarantee is a legal commitment that holds an individual personally responsible for their business credit card debts if the business cannot repay them. A personal guarantee is normally signed by a manager, director or owner of a business. By signing this agreement, the party accepts liability for the outstanding balance, even if the business closes or declares bankruptcy.
Why do lenders require personal guarantees?
Most business credit cards are unsecured, meaning there’s no collateral to back the loan. A personal guarantee reduces the lender’s risk by ensuring that the individual behind the business will cover the debt if needed.
Do all business credit cards require personal guarantees?
Not all business credit cards require personal guarantees, but the majority do — especially for small businesses or startups with limited credit histories. However, there are exceptions:
- Corporate credit cards: Designed for established businesses with substantial assets, these typically don’t require personal guarantees.
- No-personal-guarantee cards: Cards like those offered by American Express or corporate-focused providers sometimes waive this requirement, although these often have stricter eligibility criteria.
How to get a business credit card without a personal guarantee
Obtaining a business credit card without a personal guarantee is challenging, but not impossible.
- Build a strong business credit history: Establishing a robust business credit profile can help you qualify for cards without personal guarantees. Monitor your business credit score and take actions to improve it, for example by paying your bills on time.
- Explore corporate card options: Larger corporations or businesses with high revenues may qualify for cards that don’t require a guarantee.
- Secure vendor and supplier credit first: Build relationships with vendors offering trade credit. This history demonstrates your business’s financial reliability to potential card issuers.
- Research alternative lenders: Some fintech companies offer credit cards to businesses based on revenue rather than credit score, sometimes bypassing the need for a personal guarantee.
What are the risks of personal guarantees?
While personal guarantees make it easier to access credit, they come with risks:
- Liability for business debt: If your business can’t pay, your personal finances are at stake. This could include savings, property, or other personal assets.
- Impact on personal credit: Defaulting on a business credit card can damage your personal credit score, limiting future borrowing opportunities.
- Legal consequences: In severe cases, lenders may take legal action to recover unpaid debts.
What happens if you can’t pay for your business credit card?
Failing to repay a business credit card can have serious consequences, especially if it’s personally guaranteed. Here’s what to expect and how to mitigate the damage:
- Immediate repercussions - Missing payments can result in late fees, increased interest rates, and a negative impact on your business and personal credit scores.
- Legal and financial consequences - If the debt remains unpaid, lenders can take legal action to recover the amount owed. This may include garnishing wages, placing liens on personal property, or seizing assets.
- Steps to take if you can’t pay:
- Contact your card issuer: Many issuers offer hardship programs or alternative payment plans.
- Explore debt consolidation options: Balance transfer cards or small business loans can help consolidate the debt at a lower interest rate.
- Seek professional advice: Consult with financial advisors or legal professionals to understand your options.
How to manage business credit cards responsibly
To avoid the risks of personal guarantees, it can help to set internal guidelines within your business on how to use credit cards.:
- Set clear spending policies: Define acceptable business expenses and ensure employees adhere to them.
- Monitor credit card usage: Regularly review statements to track spending and spot any discrepancies.
- Maintain emergency funds: Keep a reserve fund to cover unexpected expenses or shortfalls in revenue.
- Pay balances in full: Whenever possible, pay off your balances in full every month to avoid accruing interest.
Alternatives to business credit cards with personal guarantees
While business credit cards offer convenience and rewards that make managing day-to-day expenses easier, the requirement for a personal guarantee can bring its own risks. If your business struggles to repay its debt, your personal assets and credit score could be on the line.
If you’re looking for flexible finance with more control, why not join the 150,000+ businesses that have approved for an iwoca Flexi-Loan. With fast approvals and flexible terms, you can access the capital your business needs while staying within your cash flow.
- Flexible credit limits: Borrow between £1,000 to £1 million based on your business’s unique needs and circumstances.
- Transparent terms: No hidden fees, so you always know what you’re paying.
- Fast funding: Access funds as soon as your application is approved, and seize growth opportunities straight away.
- Flexible repayment plans: Repay any amount, any time without having to pay any early repayment fees.
Find out more and see how much you could borrow with our business loan calculator.
