Business Credit Card Personal Guarantee: What Happens When You Can’t Pay
Most business credit cards require a personal guarantee — meaning you're on the hook if your business can't pay.
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Updated · 1 min read
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Lead Writer & Content Strategist A personal guarantee is a promise that if your business can’t pay its credit card bill, you’ll do so personally. It’s similar to co-signing a credit card for your business.
Personal guarantees kick in when a business shuts down, goes bankrupt or simply stops paying. If that happens, credit card issuers can sue whoever signed the guarantee for the unpaid debt.
Who has to sign a personal guarantee?
All business card applicants must agree to a personal guarantee on a credit card application, regardless of business type. That includes limited liability companies (LLCs) and corporations.
Those business structures generally protect against personal liability for business debts. But a personal guarantee supersedes that and gives the credit card issuer the explicit right to come to you personally for payment.
Do all business cards require a personal guarantee?
A handful of business cards don’t require a personal guarantee. These are typically corporate credit cards that have high revenue and cash-on-hand requirements. They're not for side hustles or bootstrapped startups. Sole proprietors are not eligible for corporate cards.
What happens if you don’t pay your business card?
Missing a payment on your business credit card will trigger a series of penalties and actions. The most severe is possible legal action against you and your business.
Consequences for not paying your business credit card include:
- Late payment fees: These are 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. (For some, it’s a single payment.) The penalty APR for business credit cards may be 29.99% or higher and can apply indefinitely.
- Lower credit score: Most business cards report negative activity to personal credit bureaus. Miss multiple payments and your personal and business credit score will drop dramatically.
- Debt collections: Card issuers can 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. The personal guarantee lets issuers go after your personal assets to recoup their losses.
What to do if you can’t pay your business card?
Ignoring business credit card debt will only make the problem worse. If you see trouble on the horizon, the following options may help minimize penalties or damage to your credit:
- Contact your card issuers. Do this as soon as you know you can’t pay your bill. Your card issuer may be willing to establish a payment arrangement and can tell you about available hardship programs.
- Move your outstanding balance to a balance transfer business card. This may give you 12 months or more 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 balance transfer card. Keep in mind: If you miss a payment, you’ll lose the 0% period and be hit with a penalty APR.
- Refinance your debt with a small-business loan. Business debt consolidation loans typically have lower interest rates than business credit cards. A business loan can be hard to get, especially if your company is facing financial trouble. Be proactive and compare business loan options before you start missing payments.
Unfortunately, most of these options are off the table once a late payment hits your personal credit report.
Last resorts: Reducing or restructuring your business card debt
There’s no way to fully wipe out your business card debt. But you may be able to reduce what you owe or make it more manageable.
These options have drawbacks, though, including further damage to your personal credit. They’re last resorts, but still better than facing potential lawsuits:
- Contact a credit counseling agency. These services are often free or low cost and can help you enroll in a debt management plan. You’ll pay off what you owe over time on one of these plans. The agency may try to get your creditors to lower your interest rates to cut that cost. See a list of Department of Justice-verified credit counseling agencies here.
- Carefully consider a debt settlement company. Debt settlement companies negotiate with creditors to lower the total amount owed. They often advise against paying those bills until they reach a settlement. This is risky because there’s no guarantee their negotiation will succeed. If it does, you’ll have to pay the agreed-upon amount to your card issuer plus a fee of 15% to 25% to the debt settlement company. Forgiven debt may be taxable.
- File for bankruptcy. This is the most extreme option. A business bankruptcy may help discharge some of your business debts. But because of the personal guarantee, you’d still be liable for your business credit card debt. You'd need to file for bankruptcy as an individual to restructure that debt. Talk to a bankruptcy attorney before taking either step.
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