Guide to joint credit cards for business

On the surface, joint credit can seem like a fairly straightforward concept. Two or more people open a line of credit, typically in the form of a credit card or loan, and share the responsibility of paying off the debt.

Joint credit accounts are usually associated with married couples, domestic partners, or families, and are thought to be a convenient way to share and manage finances. Pretty simple, right?

For businesses, the practical options include co-borrower loans, joint credit cards, and authorized user arrangements. Each comes with different rules for liability and credit score impact. Understanding these distinctions is essential before opening any shared account.

What is joint credit?

A joint credit account is a line of credit shared by two or more people. Most commonly, all cardholders or loan recipients enjoy the same access to credit but are also equally responsible for paying off the balance.

When applying for joint credit, remember that the issuer will base their decision on the credit scores of all applicants. If one applicant's credit score is significantly worse than the other's, both may be denied approval or offered a less favorable interest rate on their credit line.

Applying for a joint credit card or loan triggers a hard credit inquiry for all applicants, affecting their respective credit scores. Similarly, when defaults or missed payments occur, all cardholders are considered responsible for the debt and incur a negative impact on their credit scores. This is regardless of who makes the bulk of the purchases or who the parties have agreed will pay the bills.

While joint credit accounts are often associated with married couples, it's not uncommon for 2 or more business owners to open a joint account to make business-related purchases and collectively manage company expenses. This can work as part of a broader expense management strategy, but its viability should be determined through significant financial planning and analysis.

Types of joint credit

A joint credit account is a distinct form of shared credit. However, there are other types of shared accounts that, while similar in some ways, are subject to different rules and obligations and shouldn't be mistaken for a traditional joint credit agreement.

Joint credit account vs. authorized user agreement

An authorized user agreement happens when a primary cardholder adds another person to their account. This person receives a card and can use the primary cardholder's credit line.

The key difference lies in responsibility. Joint account holders are held equally responsible by credit card issuers for paying off debt, while in an authorized user agreement, that responsibility belongs only to the primary cardholder.

Authorized users are most commonly added by a cardholder with good credit to help boost the authorized user's credit score. But much like a joint account, if debt isn't paid off in a timely fashion, both users' credit scores can be impacted negatively.

Joint credit account vs. co-signed account

A co-signed account typically only authorizes one party to receive a loan or make credit card purchases, but has been issued on the strength of a third party's good credit. The loan recipient or primary cardholder is responsible for paying off debt, and the co-signer only becomes responsible in the event of a default.

There are two main differences between a joint credit account and a co-signed account: authorization and responsibility. With a joint credit account, all involved parties are equally authorized to access funds or make purchases, whereas a co-signed account typically only has one authorized user.

Where responsibility is concerned, all authorized parties in a joint credit account are considered "co-borrowers" and share equal responsibility for payment. A co-signed account assigns responsibility to the primary cardholder or loan recipient unless they fail to pay.

Joint credit options for businesses

Joint credit isn't only issued to married couples or domestic partners. It can be a viable tool for small business owners and startup founders looking to co-manage funds and make company-related purchases. When deciding on the most optimal way for your business to obtain a joint credit agreement, here are a few options to consider:

Take out a loan as co-borrowers

When business partners need a specific amount of capital for a predetermined purpose, they might decide to apply for a one-off loan as co-borrowers. Joint loans have typically been issued through banks and other traditional financial institutions. However, it's becoming increasingly common for business owners to seek loans through online peer-to-peer (P2P) lending platforms.

While both options have their pros and cons, remember that regardless of how the approval processes may differ, interest rates will still depend on the credit history of all relevant borrowers.

Apply for a joint business credit card

For business owners and startup founders looking to establish a shared line of credit to co-manage a variety of business-related expenses, applying for a joint business credit card might be the best option.

Unfortunately, joint credit cards issued by traditional financial institutions are becoming increasingly hard to find, with very few major banking institutions known to offer joint credit. Most institutions still make it relatively easy to add an authorized user to a credit card account, but this won't always be a comfortable arrangement for the primary cardholder.

Seek a qualified co-signer for a loan or credit card

Business owners who can't secure an adequate line of credit based on their credit scores can look for a qualified third party to join as a co-signer, whether to apply for a loan or a business credit card.

While this may be a necessary step for small businesses in need of capital, it comes with the added difficulty of finding someone willing to take on the risk of securing your credit, as well as finding an institution willing to accept a co-signer as part of the agreement.

How do authorized users work on business credit cards?

Since true joint business credit cards are rare, adding authorized users is the most common workaround for businesses with multiple owners. Here's how it works:

• Adding users: The primary cardholder submits a request to the issuer with the authorized user's information to add them to the account
• Spending access: Authorized users receive their own card linked to the primary account, giving them full spending access
• Spending controls: The primary cardholder can set individual spending limits for each authorized user
• Payment responsibility: Only the primary cardholder is obligated to pay the balance on the account

Benefits of adding authorized users to a business credit card

Adding authorized users is an approach that works especially well for multi-owner businesses. Here's why:

• Separate business and personal expenses: Each user has their own card, making it easier to track who spent what and categorize expenses for accounting and tax purposes
• Build your business credit score: Responsible use of a business credit card helps establish and improve your business's credit profile, which matters when you're securing future financing.
• Manage employee and partner spending: You can set individual spending limits, track purchases in real time, and maintain visibility over all card activity
• Earn rewards on business purchases: Pooling all business spending on one account maximizes rewards accumulation, helping points, cashback, or travel benefits add up more quickly

How to apply for a business credit card with multiple owners

If your business has more than one owner, here's how to approach the application process:

1. Designate a primary applicant: One owner submits the application and takes on primary liability for the account
2. Provide owner information: Most issuers require details on all owners with significant ownership stakes (typically 25% or more)
3. Understand the personal guarantee: Applicants typically must provide a personal guarantee, making them personally responsible for the debt if the business can't pay
4. Add co-owners as authorized users: After the application is approved, add other owners to the account as authorized users

Is a joint credit account right for your business?

Having access to credit is often critical for small businesses and startups, but whether a joint account is right for your company depends on a variety of factors.

Will a joint account be beneficial to your ability to get approved?

When determining whether to apply for joint credit, co-founders should have an honest discussion about their respective credit scores and their confidence in the company's ability to pay debts on time.

In cases where there's a discrepancy between founders' credit scores, a joint account may be necessary if an authorized user agreement isn't favored by or acceptable to all relevant parties.

Does sharing responsibility to pay off debt have the potential to erode trust?

Unwavering trust is the foundation of any successful business relationship, so it's important not to put yourself in situations that could unnecessarily compromise that foundation.

No matter how much confidence co-founders have in one another, joint credit accounts invariably come with a certain degree of risk. Is that risk worth taking to advance the business?

How reliable and robust are your accounting processes?

Running a small business or startup is a complicated undertaking, particularly when it comes to expense management. While a joint credit account can be beneficial for consolidating bills and improving a co-founder's credit score, you'll first want to be sure your business has a strong financial management strategy in place.

Your accounting processes should be as robust and reliable as possible, optimizing transparency and making it easy to integrate joint account spending into the broader corporate budget.

Who is liable for a business credit card with multiple owners?

Liability for a business credit card depends on your business structure. The primary cardholder and anyone who signed a personal guarantee are personally liable for the debt.

Business entity liability

In some cases, the business entity itself, not the individuals, holds liability. This typically requires strong business credit and a formal corporate structure. It's the exception rather than the rule, especially for newer businesses.

Personal liability for unincorporated businesses

For unincorporated businesses such as sole proprietorships and general partnerships, owners have unlimited personal liability. That means your personal assets are at risk if the business defaults on its debt.

Personal liability for incorporated businesses

Incorporated businesses such as LLCs and corporations offer a layer of protection for personal assets. However, personal guarantees—which are often required for business credit cards—can negate this protection. A personal guarantee is a legal promise to repay the credit card debt personally if the business can't.

How to divide credit card rewards among multiple business owners

When multiple owners share a business credit card account, figuring out who gets the rewards can get complicated fast. Here are a few ways to keep things fair:

• Designate 1 rewards manager: One person handles redemptions and distributes the value based on a pre-determined agreement
• Align rewards with ownership stakes: Split rewards proportionally based on each owner's equity in the business
• Use rewards for business expenses: Apply points or cashback to shared costs such as travel, office supplies, or software subscriptions
• Document the agreement: Include the rewards allocation plan in your partnership or operating agreement to prevent disputes down the road

3 ways to protect yourself from liability with a joint credit account

While using a joint credit account comes with inherent risks, there are steps you can take to better protect yourself from liabilities.

Use spending controls

Thanks to advancements in accounting technology, you can now take advantage of corporate cards while rest assured that funds are only spent on pre-approved products and services.

For example, Ramp provides software solutions that not only enforce price point restrictions but also limit spending to certain categories and vendors. Spend controls ensure that all joint account users only make purchases based on pre-established budgets, so there'll never be any gasp-inducing surprises.

Automate expense reporting and bill pay processes

Issues that arise with joint accounts often have nothing to do with nefarious intentions or an inability to pay off debt, but rather from expense reporting slip-ups that result in an unintentionally missed payment.

Platforms like Ramp give small businesses and startups an edge by offering automated expense reporting and AI-powered bill pay processes, boosting both the efficiency and accuracy with which you manage your books. If a joint credit account is right for your business, don't take any unnecessary risks when it comes to late or missed payments.

Consider a fully integrated corporate card as an alternative

While small business owners and startup founders might find it attractive to use their joint credit accounts to execute high-level business transactions, advancements in technology continue to reveal the pitfalls of managing corporate expenses in disorganized silos.

That's why Ramp created a single card that can be used across the organization by both leadership and employees. It allows for the customization of everything from spending control, expense reporting, and bill pay. It also creates an intuitive, centralized location from which all critical accounting processes can be managed.

Ramp provides real-time insight into spending activity, and allows credit limits and category restrictions to be enforced for specific users or across the entire company. Our cards can be issued in physical form or virtually, and are powered by revolutionary software that scales along with your company's needs. Plus, Ramp corporate cards come free of annual fees.

Interested in implementing better management processes around joint credit accounts, or finding an alternative business card to cut back on spending and maximize operational efficiency? Get started with Ramp.