If you’ve been in the market for a business credit card, you’ve probably noticed a term often used: personal guarantee. A personal guarantee provides business credit card issuers assurance that they’ll get their money back regardless of what happens with the business.
But what if you don’t want to put your personal financial stability on the line to access capital for your business?
Learn more about personal guarantee business credit cards and how to access business credit with no personal guarantee below.
What does "no personal guarantee" mean for a business credit card?
A personal guarantee is exactly what it sounds like. It’s a guarantee by the business owner that they’ll pay their debt back out of their own pocket if the business can’t afford to do so. When you open a business credit card with no personal guarantee, the credit card issuer underwrites the loan based just on your business data.
By contrast, business credit cards with personal guarantee are underwritten based on a mix of your business data and your personal credit. What this means is if your company is unable to pay the bill, this personal guarantee gives the lender the right to start the collection process on you as the business owner. This could include everything from annoying phone calls to a detrimental impact on your personal credit and, in the worst-case scenario, a lawsuit and judgment against you. You could even lose personal assets up to and including your home if things go wrong with a personal guarantee.
Although you never want to think about your business becoming insolvent, it’s important to consider what could happen when your personal financial stability is on the line.
How to get a company credit card with no personal guarantee
If you don’t want to put your personal financial stability on the line for a business credit card, there are options that don’t require a personal guarantee. However, some of these credit cards are notoriously hard for new businesses to access.
General requirements
Lenders that offer business credit cards with no personal guarantee typically require you to have:
- A well-established business: Your business will likely need articles of incorporation that show it has been operational for a minimum of three years.
- Established business credit: Your business will likely need some form of positive credit history—like a history of responsible use of a business credit card with a personal guarantee.
- Deposit account: You may be required to open a deposit account and maintain a minimum balance with the lender. This account is typically linked to the credit card, acting as a safety net for the lender, much like a personal credit card with a security deposit.
- Significant revenue and profitability: You’ll typically need to be able to prove that your business generates at least $100,000 in annual profits.
Consider corporate cards
Corporate cards work just like credit cards, but they don’t usually require a personal guarantee because they require a higher revenue threshhold. You may be able to get approved even if you operate a relatively new business because some card providers offer sales-based underwriting to determine your revenue and profitability instead of requiring multiple years of financial documents.
If you have multiple employees, you should consider corporate cards over business credit cards. They usually offer wider benefits like multiple spending cards, spend management features, and real-time tracking.
Another benefit of corporate cards is that they don’t charge interest like credit cards. Instead, you pay balances off monthly, avoiding interest and late payment fees.
How to choose the right card
If you’re looking for a new credit card for your business and build business credit, it’s important to compare your options carefully. After all, financial accounts can either make your life easier or throw a figurative wrench into your financial plan. Consider the following as you compare your options.
1. Look for rewards and perks that can help your business
As you shop your options, you may get drawn in by airline rewards and other membership-style rewards programs. However, these aren’t best for most businesses. These programs are usually difficult to navigate and result in less value for the end user.
Also, look for additional perks that can help your business, like negotiated discounts on essential business software.
Finally, look for cashback rewards programs. For example, Ramp offers 1.5% unlimited cashback on all purchases.
2. Compare interest, fees, and liabilities
Small business credit cards typically come with a long list of fees, including:
- Interest
- Annual fees
- Foreign transaction fees
- Over-limit fees
- Late payment fees
- Balance transfer fees
- Cash advance fees
It’s important to get a detailed understanding of all the fees each of your options charges and choose a card that helps you minimize costs. Moreover, consider the liabilities associated with account ownership, like a potential requirement to open a deposit account with the issuer and maintain a minimum balance.
If you want to avoid interest and fees entirely, you may want to consider a corporate card where you pay off your balance monthly.
3. Consider credit limits
The average small business credit card credit limit in the United States is $56,100. However, your credit limit may be significantly higher or lower than average. That’s because lenders use several factors to calculate your credit limit. These typically include:
- Credit history: The more established your business credit is, the higher the credit limit you’ll qualify for. For example, a business with 10 years of on-time payments will likely be able to access more capital than a business with 3 years of on-time payments.
- Revenue and profitability: Lenders ultimately want to know that your business has the ability to pay back the money they lend. The more revenue and profitability your company generates, the more money lenders are going to offer.
- Credit utilization rate: Your business’s credit utilization rate is the percentage of available credit it has already used. When your credit utilization rate is too high, it’s a red flag to lenders. If you keep your credit utilization rate below 30%, lenders are more likely to offer a higher credit limit.
- The lender: Some lenders are known for offering higher credit limits than others.
- Underwriting style: If you use e-commerce platforms like Shopify, Stripe, or Amazon, you should strongly consider looking for a card provider like Ramp that uses sales-based underwriting. This typically leads to much higher credit limits—up to 30x higher than traditional offerings in some cases.
4. Look for spend management software
When you look for a business credit card, you should look for something more than a traditional credit card. In particular, look for modern options that come with spend management software. Cards like Ramp give you complete control over your company’s spending with features like:
- Unlimited employee cards with custom spending limits at the card and transaction level
- Approval workflows that automatically trigger when your employees request a card
- Advanced spend controls like merchant and category restrictions to help you implement your expense policy
- Real-time expense tracking and automated savings insights to help you cut down on redundant software, duplicate subscriptions, and more
- Automatic receipt collection and integration with your accounting software to save time at month end
- Access to bill pay and reimbursement capabilities so you can track all of your non-payroll spend in one place
Access the capital you need and so much more with Ramp
If you need access to a spending card for your business, Ramp is what you’re looking for. Our card comes with a wide range of spend management features, 1.5% unlimited cashback on all purchases, and integrations with platforms like QuickBooks, NetSuite, and Sage Intacct for better accounting. The best part is, the platform is completely free, and recent case studies show it’s highly effective. For example:
- Candid: Ramp helped Candid go global, paying over $44,000 in cashback, opening the door to more than $250,000 in savings, and saving 10 hours per employee offboarding on vendor updates.
- Sandboxx: Sandboxx replaced its American Express with Ramp. It now saves 10 hours per month on the expense management process.
- FirstBlood: FirstBlood used Ramp to speed up its monthly financial closings. As a result, it closes its books 150% faster, saving 40 hours per month with absolutely no out-of-pocket cost.
How will Ramp help your business? Find out here.
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