According to the Small Business Administration (SBA), there are over 33 million small businesses in the United States, and I am proud to own and operate one of them. One of the many things (if not most) that small business owners must deal with is obtaining the necessary funds to open and operate their doors.


One of the decisions many small business owners may face when starting out is whether to sign a personal guarantee on their credit applications. When deciding if a card with a personal guarantee is right for you, consider these six important questions.

1. What is a Personal Guarantee?

In the realm of credit and borrowing, a personal guarantee is language that may appear in an agreement with a business lender, requiring you to take financial responsibility for your company’s debt. A personal guarantee essentially holds you accountable for paying your business debts, much like you would be responsible for personal credit card, auto loan, or mortgage debts.

Most business loan providers require business owners to sign personal guarantees because every one of these over 3.3 million small businesses started without products, revenue, customers, or a business credit history. When you lack these things, if your business credit card or loan defaults, lenders will require you to step in for your company. This is their way of reducing the risk of business failure.

While some may see personal guarantees as punitive, they do serve a valuable purpose by providing a catalyst for funding to unproven businesses.

2. Should I use a personal credit card to fund my business?

If you prefer not to sign a personal guarantee or apply for any business credit to fund your operations, you do have other options. Using existing or newly opened personal credit cards instead of applying for business credit can be a viable alternative.

In fact, there are numerous success stories of very successful businesses built on shoestring budgets, funded by personal credit card debt, loans from family and friends, and other funding sources from non-traditional business loan institutions.

However, keep in mind that if you use personal credit cards rather than business credit cards, you are still personally liable for the debt. Also, using part of your credit card’s credit limit for business purposes will restrict your ability to use the card for personal expenses.

Now, whether or not to use a personal credit card for business funding is a different topic. If your accountant is anything like mine, they’ll tell you to keep personal credit and business credit and expenses separate to make accounting and tax reporting as straightforward as possible.

But that’s not the only reason not to rely on personal credit cards longer than absolutely necessary. You should also pay attention to your credit report and credit score.

3. How does a personal guarantee card affect my credit score?

Nearly every consumer credit card issued by American Financial Services companies reports to one or more national credit reporting agencies Equifax, Experian, and TransUnion. Of course, credit cards on your credit report also affect your credit score.

If you use credit cards responsibly, they will help your credit score. However, if you abuse credit cards by defaulting on payments and exceeding credit card limits, your credit report will damage your credit score.

But business credit cards generally do not report to consumer credit bureaus unless in some cases. The most common practice I found is that the business card issuer reports your account to the credit bureau only when you default.

However, there are a few issuers that do report personal guarantee business credit cards to consumer credit bureaus, even if they are in good credit.

If you can find a lender willing to provide business credit cards and not require you to sign a personal guarantee, the account will not be added to your personal credit report because you will not incur consumer debt. But if you have indeed signed a personal guarantee, the lender can report the account to the credit bureau like any other consumer credit card account.

As for the impact on your credit score, there is no difference between personal guarantee consumer debt and personal guarantee business debt. This means that the unpaid business credit card will have the same effect on your credit as the unpaid consumer credit card. The effect of a business credit card on your credit is the same as that of a consumer credit card.

4. Is a business credit card difficult to open?

Business lenders, many of whom are also personal lenders, engage in lending. This means that they want to offer as much credit as possible to borrowers. This makes opening a business credit card quite simple and painless.

You will be asked to provide information about your business to the lender so that the lender knows that a real entity is running the business. And, as we’ve already introduced, you will be asked to agree to the cardholder’s agreement, which may include a personal guarantee.

As part of a personal guarantee, the lender will collect your personal information and then obtain a copy of one or more of your personal credit reports and credit scores, just as you would apply for a consumer credit card.

If your credit report and credit score are good enough and meet the issuer’s approval standards, you much more probably will be approved. The way it works is that they create the production approach。

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