Who Is Responsible For Business Credit Card Debt?

Business credit cards are a useful way for anyone in your organization to make purchases, all while earning reward points. But while swiping the card may be easy, it raises questions about who is ultimately responsible for the purchases made with the card. The swiper? The business owner? The business itself?

If you’re confused about who is responsible for business credit card debt, read on.

The Personal Guarantee

In most cases, it’s pretty easy to figure out who is ultimately responsible for business credit card debt. Typically, a credit card company will require the business owner to sign a personal guarantee.

What this means is that, even though the business credit card is technically taken out in the name of your business, the creditor can try to collect on you, personally. This bypasses some of the protections granted to your personal assets by your business’s corporate status.

If you’re worried about creditors knocking on your door after they’ve squeezed all the blood from your business, you may want to think twice before signing a personal guarantee–and scrutinize the ones you do sign.

Personal guarantees come in limited and unlimited forms. An unlimited guarantee is a great deal for your creditor. Under that agreement, you can be held responsible not only for your debt, but for any legal fees associated with collecting that debt. As you might guess, signing an unlimited guarantee is far from ideal.

Limited guarantees come in a couple different forms, but in most cases they assign liability between multiple parties. You’re most likely to see this arrangement if you have business partners, but it’s possible, at least in theory, to negotiate an unlimited guarantee down to a limited one.

Does That Mean The Owner Is Always Personally Responsible?

While a personal guarantee sounds pretty straightforward, in practice it’s far from an air-tight contract.

A side effect of pushing the responsibility onto the business owner is that it can make the debt subject to personal bankruptcy protections. In those cases, your business credit card debt is treated like personal debt.

Even if you don’t declare bankruptcy, a personal guarantee doesn’t necessarily entitle the creditor to declare open season on all your property. To collect anything, they’ll need a legal judgment against you. Depending on your balance, your creditor may decide your debt isn’t worth the trouble.

Is There A Way To Avoid A Personal Guarantee?

You might be noticing a theme so far: there are few certainties in the world of business credit cards. And what do you know? It applies here as well.

The default terms for almost all business credit cards include a personal guarantee, so it won’t be a matter of hunting down a rare, plastic unicorn. On the other hand, banks are more inclined toward negotiation with established customers. You stand the best chance of having a personal guarantee waived if you’re applying for a business credit card from a bank with whom you’ve previously had a relationship.

Bigger businesses and corporations may also be able to use the heft of their enormous accounts to negotiate better business credit card terms with their bank.

Who Is Responsible If You Avoid A Personal Guarantee?

If you circumvent the personal guarantee, your liability for unpaid debt will depend on the way your business is organized. That means limited liability corporations (LLCs), C-corps, and S-corps will, in most cases, have the protection from personal liability that you normally enjoy.

Final Thoughts

Business credit cards come with personal risks. Be sure to understand what your liability is and which assets will be exposed should you default. And, if you can, negotiate a deal that will leave you as protected as possible.

Looking to compare business cards? Check out our 2019 business credit card breakdown.