What is a personal guarantee on a credit card?

Quick insights

• A personal guarantee on a credit card is a legal agreement that states the cardmember is liable for paying off the balance on the card.
• Many business credit cards include a personal guarantee.
• If you fail to make on time payments on a credit card with a personal guarantee, your credit score may be negatively affected.

Many business credit cards provide small business owners with a reliable line of credit, the ability to earn rewards points and organization over their work-related finances. But it’s important to note that many business credit cards come with a personal guarantee—which means the cardmember is personally liable for ensuring the card is paid on time.

Read on to learn more about how personal guarantees work and what might happen if you don’t pay off your business credit card balance.

How personal guarantees work

Personal guarantees are often required by credit card issuers to mitigate the risk of lending to small businesses, which may have limited credit history or assets.

If a business credit cards is in your name, you’ll be personally liable for any business debts that aren’t paid. This also means you may need to use personal assets to satisfy debts if necessary.

There are two main types of personal guarantees. Here’s how each works:

• Unlimited guarantee: The individual is liable for the full amount owed.
• Limited guarantee: The individual’s liability is capped at a specific dollar amount.

Personal guarantees are legally binding contracts, so it’s usually a good idea to check a business card’s terms and conditions before applying. This way, you’ll be aware of what you may be legally responsible for should your business default on payments.

Why business credit cards have personal guarantees

Many business credit cards require personal guarantees when lending to small businesses. This is because small businesses often have limited credit history or assets, making them potentially higher risk borrowers. Your lender also may require you to have a personal guarantee if your business is in a high-risk industry.

If you have an established business with a consistent revenue and a positive credit history, a personal guarantee may not always be required; this varies by credit card. But keep in mind that many popular business credit cards have personal guarantees for all cardmembers, regardless of business success.

What happens if you don’t pay off your business credit card

If you can't pay off your business credit card debt, your card issuer will require you to personally repay the amount owed.

First, you may incur late fees if you miss or make a late business credit card payment. If your credit issuer reports these missing or late payments to credit reporting agencies, it may affect both your business and personal credit scores.

This is because many business credit cards, including the Chase Ink credit cards, require both joint and several liability. That means both the individual cardmember and the business are liable for repayment. If debt is not paid off, the credit card issuer may report card activity to credit card bureaus like Experian™, Equifax^® and TransUnion^®.

After a given series of warnings and late payments, the card issuer may choose to sell your account to a collection agency. In this case, the collection agency might contact the cardmember to collect the debt.

To avoid negative consequences, it’s typically best to pay off business credit card balances on time (and, if possible, in full).

Advantages of personal guarantees

Planning to apply for a business credit card? Here are potential advantages that come with agreeing to a personal guarantee:

• Increased chance of approval if you don’t have an established credit history
• Ability to establish and improve your business credit history
• Access to higher credit limits if approved

In short, agreeing to a personal guarantee means you likely pose less risk to lenders. This might make it easier to access a business credit card and its benefits if you have yet to establish a business credit history.

Disadvantages of personal guarantees

While personal guarantees can assist you in accessing a business line of credit, there are possible downsides if you don’t pay off your debts:

• You’re personally liable for business debts, which could put your personal assets at risk
• Your personal credit score could be impacted
• There’s a less clear division between personal and business finances

The best way to avoid these circumstances is to pay off your business credit card debts on time. There are a few strategies that may help mitigate negative consequences if you can’t pay off your business credit card, though.

What to do if you can’t pay off your business credit card

If you find yourself in a position where you’re unable to pay off business credit card debt, it may help to take the following steps:

• Contact your credit card issuer: Be proactive and see if your card issuer offers any hardship programs that reduce interest rates, waive fees or allow you to pay off debt through a payment plan.
• Cut unnecessary spending: Business dinners, employee outings and extra day-to-day expenses add up over time. Cut or pause excess spending if you need to pay off existing debt.
• Apply for a balance transfer credit card: It may be possible to consolidate debt and save on interest charges with a balance transfer credit card. Many balance transfer cards offer new members low-interest introductory APR rates. Just be sure you’ll be able to pay off debts on time on the new card; otherwise, the problem may get worse. Also keep in mind that balance transfers may come with fees.
• Set up automatic payments: While this likely won’t help if you’ve already missed payments or accumulated debt, it could help you stay on track for future billing cycles.

You may also consider a small business loan to consolidate your current debts. You might be able to secure lower interest rates if approved.

Are there business credit cards without personal guarantees?

It’s possible to find a business credit card without a personal guarantee, though it may be less common. Keep in mind that you may need to meet certain revenue or asset-related criteria to qualify for a card that doesn’t have a personal guarantee.

In summary

If you use a business credit card responsibly, there’s probably no reason to fear cards that require personal guarantees. Provided you pay off balances on time, you may be likely avoid any negative consequences—and can even build your business credit history over time.

Learn more about our business credit card options to decide which is best for you and your business.