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In a perfect world, you can always pay your business credit card. But in reality, businesses can face inconsistent cash flow — and many ultimately fail.
If your company hits hard times and can’t pay its business credit card, you’ll have to deal with late fees and higher interest rates. Failing to pay a business credit card can also significantly damage your business and personal credit scores because almost all business cards report serious delinquencies to consumer credit bureaus.
Refinancing the debt or leveraging a balance transfer business credit card, can give you space to pay down the balance without penalties if you act at the first sign of trouble. But if the problem lingers and you don’t pay the debt, you could have to forfeit your personal assets.
Why? Because nearly all business credit cards require a personal guarantee that says, in short, if your business can’t pay the bill, you will.
What is a personal guarantee for business cards?
Think of the personal guarantee as akin to co-signing a credit card for your business. Ideally, the business will take care of its bills, but if it doesn't, you have to. Business owners can be personally sued by credit card issuers over unpaid business card debt if the business shuts down or goes bankrupt.
This provides some assurance to the credit card company that charges on the card will be paid regardless of what happens with the business. After all, about half of all small businesses fail in the first five years, according to data from the U.S. Bureau of Labor Statistics.
A few business cards don’t require a personal guarantee. These are typically corporate credit cards that have high revenue and cash-on-hand requirements. In general, a company must be well established, with significant revenue and a credit history of its own, before corporate cards become an option. They're not for side hustles or boot-strapped startups.
Who does the personal guarantee apply to?
The personal guarantee on a credit card applies to all business types, including limited liability companies, or LLCs, and corporations, which are generally protected against personal liability for business debts. The personal guarantee supersedes any limited liability protections and gives the credit card issuer the explicit right to come to you personally for payment.
The personal guarantee is typically spelled out in the terms and conditions when you apply for a business credit card. That's one of the reasons you have to supply your Social Security number: The issuer is checking your personal credit to gauge how likely you are to repay the debt if it comes to that.
Because of the personal guarantee and the credit check that comes with it, small-business cards generally require applicants to have good to excellent personal credit.
In the terms and conditions accompanying the application, you should see language spelling out the personal guarantee. Look for words like "personally responsible" or a clause stating that you and your business are "individually and jointly" or "jointly and severally" liable for all charges made to the account.
What happens if you don’t pay your business credit card?
Missing a payment on your business credit card will trigger a series of penalties and actions, the most severe being legal action against you and your business.
Consequences for not paying your business credit card include:
Late payment fees: The late payment fee on a business credit card is typically $40 to $50 or 2% to 3% of the past-due amount, whichever is greater. Expect a late payment fee if you don’t pay the minimum amount by the due date.
Penalty APR: Most card issuers will hike your interest rate if you miss multiple payments. The penalty annual percentage rate, or APR, for business credit cards currently ranges from 29.99% to 33.65% and typically applies until you make six to 12 months of consecutive on-time payments. Regular interest rates on business credit cards typically range from 17.49% to 28.24%, depending on the card and your personal credit score, among other factors.
Lower credit score: Missed payments can affect your business credit score and your personal credit score. Almost all card issuers report activity (good and bad) to business credit bureaus. A handful of business cards report activity to personal credit bureaus — but only if you’re seriously behind on your bill. Late payments on your business credit card can lower your personal credit score by as much as 100 points.
Debt collections: Card issuers will transfer the unpaid business debt to a collection company. Note: You can still be charged interest by the collection company.
Lawsuit: You can be sued for unpaid business credit card debt. Because of the personal guarantee required by most business credit cards, issuers can go after your personal assets to recoup their losses.
What should you do if you can’t pay your business credit card?
Ignoring business credit card debt will only make the problem worse. If you see trouble on the horizon, take action right away to minimize penalties or damage to your credit. After a late payment hits your personal credit report, most of these options are off the table.
Transfer your outstanding balance to a balance transfer business card to get 12 to 18 months to chip away at your balance, interest-free. Sole proprietors and business owners with no employees can often find a longer 0% period with a consumer credit card. Just remember: If you miss a payment, you’ll forfeit the 0% period and be hit with a penalty APR.
Refinance your debt with a small-business loan, which typically will have lower interest rates than business credit cards. A business loan can be hard to get, especially if your company is facing financial trouble, so it’s best to be proactive and compare business loan options before you start missing payments.
Contact your card issuers as soon as you know you can’t pay your bill. Your card issuer may be willing to establish a payment arrangement and can inform you of available hardship programs.
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