Published By Janet Gershen-Siegel at September 7th, 2017
You know the drill. You shopped around the major banks, and then the medium-sized banks and then the small ones. You tried the banks where you do business and any others recommended by your friends or business associates. But after your long quest, you were unable to get any sort of a business credit card without a personal guarantee.
There are over 500 different business credit cards out there but less than fifty of them offer credit to businesses without a personal guarantee. Complicating matters, these cards are not advertised or offered to all interested clients.
You can relate to the banks’ point of view. They don’t like risk so they try to minimize it by securing a business credit card. They do this by asking you, the business owner, to guarantee payments from your personal funds, in case of business default. If worst comes to worst, and as a guarantor or co-signer you are unable to pay the debt, then your personal assets will be executed. As in, your bank accounts, your car, your home, your stocks, and anything else you may have used to guarantee that card.
But your point of view, naturally, is that you need this card to run your business better.
The first thing you can do, and it’s easier said than done, is to have patience, and build credit worthiness for your business in the same way that you have built your personal credit history. For most businesses, this means paying your debts on time, plus staying in business for a while, in order to build up a record of creditworthiness.
In order to get rid of the sticking point of apersonal guarantee, you have to show the bank that your business is robust, that it can generate steady revenue, it has a health cash flow, and the business has a spotless repayment history. If all of the above can be proven,it will be a lot easier to find a business credit card without a personal guarantee.
Here are steps you can take:
Distinguish yourself from your business. This means you can help your causeby incorporating or becoming a limited liability company (LLC). This is a separate entity from the owner(s) and it means you must register for a separate identification number with IRS. If your business is already an LLC you can skip this step altogether.
Get one or more business credit cards with personal guarantees. The ones with high spending limits will be better for they are the only ones reported to the business credit agencies. Make sure when you acquire these products, they have the personal guarantee removal feature built in. Keep your credit utilization at one third of your credit ceiling or less. Pay on time every time.
Be sure to use these business credit cards to make your company’s large purchases. These purchases, combined with a low revolving debt and of course timely repayment will demonstrate to the bank that your business can manage its finances well. It will also persuasively show that the cash flow your business generates is enough to cover debts and more.
Make sure that your personal credit history stays impeccable. After a while (six months – to one year), you can file a personal guarantee removal request for these existing business credit cards. The bank will conduct an account review, but they may also look into your personal credit report. If the bank accepts your request then you have reached your goal. If the bank says no, don’t give up, just move to the next step.
You can choose to apply for third-party guaranteed lending. For example, this can be anSBA loan, for funding. Repaying such a loan will help you build your business credit score. You can also apply for a business credit card from a specific store. These store credit cards usually do not require a personal guarantee. Chose a store where your business makes purchases often and of course don’t forget about those timely payments!These store credit cards,together with an SBA loan will increase your PAYDEX score provided by Dun and Bradstreet. If you are unfamiliar with the term, the short version is that PAYDEXis for businesses what FICO is for individuals. Store credit cards will offer you from the beginning an extra perk; they will diminish your personal liability for your business debt.
Ask the bank again to remove the personal guarantee clause or apply for new business credit cards with no personal guarantee, after you have generated an 80 PAYDEX score under the above conditions. Your chance to get such credit cards will increase exponentially.
You can instead apply directly for those few business credit cards without personal guarantees. For example you can go for Sam’s Club® Business MasterCard® or the Bremer Bank Visa® Signature Business Company Card.
Each particular card of this kind asks you, the business owner, to meet a set of conditions which differ from one product to another. For aSam’s Club® Business MasterCard®you need your business to generate over $5 million in annual sales. The Bremer Bank Visa® Signature Business Company Card is available for businesses with annual sales between $1 million and $10 million while other business credit cards with no personal guarantee attached require an open Dun& Bradstreet file and other conditions to be met. Be sure to check with the card issuer and read all of the details of the offer carefully.
With patience and in time, you can get a business credit card from a bank with no personal guarantee. All you need is what the banks ask: a solid business generating steady revenues, with a healthy cash flow.