Published By Janet Gershen-Siegel at December 15th, 2018
Our no personal guarantee business credit cards list will help you now and later.
Getting credit is not easy.
You know what I’m talking about. You looked around the big financial institutions, and then the medium-sized banks. And then you tried the small ones. You tried the banks where you do business. And you went to any others recommended by your friends or business associates.
But after your long quest, you were not able to get any kind of a business credit card in the absence of a personal guarantee.
There are over 500 different business credit cards out there. But no more than fifty of them grant credit to companies in the absence of a personal guarantee. Complicating matters, these cards are not advertised or offered to all interested consumers.
You can identify with the banks’ perspective. They don’t like risk so they attempt to lessen it by securing a business credit card.
They accomplish this by asking that you, the company owner, guarantee payments from your personal finances. This is in case of business default.
If worst comes to worst, and as a guarantor or co-signer you are not able to pay the financial obligation, then your individual assets will be executed.
As in, you could lose your bank accounts, your automobile, your house, your stocks, and whatever else you may have used to guarantee that card.
But your way of thinking, naturally, is that you need to have this card to run your small business better. So here are a few ways to proceed.
You can instead apply directly for those very few small business credit cards without personal guarantees. For instance you can opt for Sam’s Club® Business MasterCard® or the Bremer Bank Visa® Signature Business Company Card.
Each specific card of this type asks you, the business owner, to meet a set of conditions. But these differ from one card to another.
For a Sam’s Club ® Business MasterCard ® you need your business to earn over $5 million in annual profits.
The Bremer Bank Visa ® Signature Business Company Card is available for businesses with yearly profits between $1 million and $10 million.
But at the same time other small business credit cards with no personal guarantee attached call for an open Dun & Bradstreet file. Plus there may be other stipulations to be met.
Be sure to consult the credit card issuer. And review all of the details of the offer with care.
Check out the Wells Fargo Business Secured Credit Card. It allows cardholders to get a credit limit of $500 – $25,000. The amount available equals the amount of funding you offer to secure the line.
Your purchase APR rate can be as low as a variable 13.15%. And the yearly fee is $25. But the more cards you have, the higher your yearly fee is going to be.
This card lets business owners with bad personal credit to obtain a card to make purchases and create business credit.
But the card will just report to the personal credit agencies if you default or are late on payments.
For Fair Credit, we like the Capital One Spark Classic for Business. It has no annual fee. There are cash-back rewards. But you will need a credit score of 690 or better.
But BEAR IN MIND: the standard APR is 23.99% variable APR.
The very first thing you can do, and it’s easier said than done, is to have patience. And develop creditworthiness for your small business. You can do this in the same way that you have established your personal credit history.
For most small businesses, this means settling your debts on schedule, plus staying in business awhile. This is to develop a record of creditworthiness.
To get rid of the sticking point of a personal guarantee, you have to demonstrate to the bank that your small business is solid. And you need to show that it can bring in consistent profits. Plus it must have a healthy cash flow. And the business needs to have a spotless repayment history.
If all these can be shown, it will be a lot less complex to find a small business credit card without a personal guarantee.
Here are measures you should take:
Differentiate yourself from your business. This means you can help your cause by incorporating. Or you can become a limited liability company (LLC).
This is an independent entity from the owner(s). And it means you must register for a distinct identification number with IRS. If your company is already an LLC you can skip this step altogether.
Get several small business credit cards with personal guarantees. The ones with high spending limits will be better. This is because they are the ones on report to the business credit companies.
See to it when you get these products, they have the personal guarantee removal feature already added. Keep your credit utilization at one third of your credit ceiling or less. Pay promptly every single time.
This personal guarantee can come from you, but it can also come from an investor.
If a member of the family (your semi-rich uncle, as an example) would like to have a portion of your new business, why not offer a portion for them giving a personal guarantee to a lending institution or credit issuer?
Personal guarantees do come with a degree of risk. If your business does not take off, then your investor can be left holding the bag if you default on loans and the like. Hence, requesting someone to furnish a personal guarantee for you is not something that either of you should take lightly.
Be sure to use these company credit cards to make your company’s significant orders. These purchases, blended with a low revolving debt and of course prompt repayment will indicate to the bank that your business can handle its financial resources well.
It will also persuasively demonstrate that the available resources your business yields are enough to cover debts and more.
Make sure that your personal credit history stays spotless. Eventually, you can submit a personal guarantee removal request for these existing business credit cards. So this is within six months to one year.
The bank will conduct an account review. But they may also check out your individual credit report. If the bank approves your request then you have arrived at your end goal. If the bank says no, don’t throw in the towel. Just move to the next step.
You can elect to make an application for third-party guaranteed lending. For instance, this might be an SBA loan, for funds. Paying back such a loan will help you build your business credit score.
You can also make an application for a small business credit card from a specific retailer. These store credit cards often do not require a personal guarantee. Go for a store where your small business makes purchases often. And by all means do not forget about those timely payments!
These store credit cards, together with an SBA loan will raise your PAYDEX score provided by Dun and Bradstreet. If you are not familiar with the term, the quick version is that PAYDEX is for businesses what FICO is for individuals.
Store credit cards will provide you from the start an added benefit. That is, they will decrease your individual accountability for your small business debt.
Ask the bank again to take away the personal guarantee clause or apply for new company credit cards without any personal guarantee. Do so once you have attained an 80 PAYDEX score under these conditions. Your opportunity to get such credit cards will increase greatly.
Without a personal guarantee, some lending institutions will obtain a UCC blanket lien on your firm. A UCC blanket lien acts as a notification which will go on your credit report. It indicates that the loan provider has a financial interest in all your business’s assets until you satisfy the loan fully.
As a result, there might be unfortunate repercussions if you need to default. Likewise, for very bad credit risks, your creditor may insist on both a UCC blanket lien and a personal guarantee.
A superior approach is unsecured credit. Unsecured just means you are getting credit without putting down any funds (with secured credit, you put down a certain sum and can only borrow up to that sum).
So, how do you acquire unsecured credit? You get it by putting up collateral for your loan. Don’t believe you’ve got enough for collateral? Reconsider. You may have any range of assets which might be used as collateral for a business loan.
You may have a retirement fund, like a 401 (k). Or your semi-rich relative might give you (or will to you) stocks or bonds. You might own your own residence. All these assets can be used as collateral for unsecured credit, no matter if that’s in the form of an unsecured business loan or a credit card.
Your company could also have properties which you could tap as collateral. Company assets can include real property– does your business own land, or a building, or part of a building? You can use this real estate as collateral.
It can also mean equipment, if you own it free and clear, although this has to be significant equipment. You won’t have the ability to put together a bunch of smaller equipment. This is called an equipment sale leaseback– you are basically selling your equipment to the loan provider and renting it back from them for the price of your loan payments.
How about business inventory? You can use inventory valued at $500,000 or more and use it for a line of credit valued at 50% of your inventory’s value for what’s referred to as inventory financing. Or if you have more like $300,000 worth of inventory, you can get an inventory loan for $150,000 (that is, the loan to value, AKA the cost, is 50%).
You could also use your anticipated profits as collateral. Let’s say your business has uncollected invoices out to your clients. You may have provided generous repayment terms to sweeten a deal and get the sale.
Or perhaps your customer is just plain late paying you back. With accounts receivable factoring, you can get up to 80% of your unsettled receivables. That being said, you must be in business for at least a year and the receivables must be with some other business (e. g. not with an individual).
So think of what you and your firm have, or are anticipating to own in the soon. You just may have more than enough collateral for an unsecured business line of credit even though your personal credit is bad.
With patience and over time, you can get no personal guarantee business credit cards from a bank without any personal guarantee.
All you need is what the financial institutions ask. That is, a stable company yielding consistent earnings, with a healthy cash flow.