Published By Janet Gershen-Siegel at November 20, 2017
It’s all about reputation and risk. This is the main reason why acquiring credit is not easy.
You know what I’m talking about. You shopped around the big financial institutions, and then the medium-sized banks and 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 search, you were unable to obtain any sort of a company credit card without a personal guarantee.
There are over 500 distinct business credit cards out there but fewer than fifty of them grant credit to businesses without having a personal guarantee. Complicating matters, these cards are not advertised or offered to all interested consumers.
The financial institutions’ point of view is that they don’t like risk so they try to minimize it by securing a business credit card. They do so by asking you, the small business owner, to guarantee payments from your private finances, in the event of business default. If worst comes to worst, and as a guarantor or co-signer you are unable to pay the debt, then your private assets will be executed. As in, your accounts, your vehicle, your house, your stocks, and anything else you may have used to guarantee that card.
But your position, obviously, is that you need to have this card to run your small business more effectively.
The first thing you can do, and it’s easier said than done, is to have patience, and establish creditworthiness for your small business in the same manner that you have grown your personal credit history. For most businesses, this means paying your financial obligations punctually, plus remaining in business awhile, to build up a record of creditworthiness.
In order to get rid of the sticking point of a personal guarantee, you will have to show the bank that your small business is solid, that it can generate steady revenue, it has a healthy cash flow, and the company has an unsullied payment history. If all of these can be shown, it will be a lot less complicated to find a company credit card without a personal guarantee.
Here are measures you can take:
Distinguish yourself from your business. This means you can really help your cause by incorporating or becoming a limited liability company (LLC). This is an independent entity from the owner(s) and it means you must register for a separate identification number with Internal Revenue Service. If your business is already an LLC you can bypass this step altogether.
Get one or more small 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 get these products, they have the personal guarantee removal feature baked right in. Keep your credit utilization at one third of your credit ceiling or less. Pay punctually every time.
Be sure to use these company credit cards to make your small business’s more sizable orders. These purchases, in combination with a low revolving debt and of course on time repayment will demonstrate to the financial institution that your small business can maintain its financial resources well. It will also persuasively demonstrate that the profit your business brings in is enough to take care of financial obligations and more.
See to it that your personal credit history stays spotless. Eventually (six months– to one year), you can submit a personal guarantee removal request for these preexisting business credit cards. The financial institution will perform an account review, but they may also check out your private credit report. If the bank accepts your request then you have reached your objective. If the bank says no, don’t give up; just move onto the next step.
You can elect to apply for third-party guaranteed lending. For example, this may be an SBA loan, for funding. Paying back such a loan will help you grow your business credit score. You can also make an application for a business credit card from a particular store. These store credit cards generally do not call for a personal guarantee. Go for a store where your business makes purchases frequently and by all means don’t forget about those on time payments! These store credit cards, along with an SBA loan will enhance your PAYDEX score provided by Dun and Bradstreet. If you are unfamiliar with the terminology, the brief version is that PAYDEX is for businesses what FICO is for individuals. Store credit cards will supply you from the start an added bonus; they will diminish your individual accountability for your company debt.
Ask the bank again to take off the personal guarantee clause or make an application for new small business credit cards without a personal guarantee, once you have attained an 80 PAYDEX score under these conditions. Your chance to get such credit cards will increase tremendously.
You can as an alternative apply directly for those very few business credit cards with no personal guarantees. For example you can select Sam’s Club® Business MasterCard® or the Bremer Bank Visa® Signature Business Company Card.
Each particular card of this type asks you, the small business owner, to achieve a set of conditions which differ from one product to another. For a Sam’s Club ® Business MasterCard ® you need your business to bring in over $5 million in annual sales. The Bremer Bank Visa ® Signature Business Company Card is attainable for businesses with yearly profit between $1 million and $10 million while other business credit cards without a personal guarantee attached demand an open Dun & Bradstreet file and other stipulations to be met. Make sure to consult the credit card provider and read all of the aspects of the promotion with care.
With patience and in time, you can obtain a business credit card from a financial institution without any personal guarantee. All you need to have is what the financial institutions ask: a dependable business bringing in consistent earnings, with a healthy cash flow.