What Happens If You Can’t Pay a Business Credit Card?
With a small-business credit card, you usually have to agree to pay the bill personally if your company can't.
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It can feel overwhelming if your company can’t pay its business credit cards. But the consequences can affect you personally. So it's in your best interest to take action.
If you stop paying your business credit card, your personal guarantee can kick in. That means you could have to use personal assets to cover what your business owes. The card issuer might charge late fees and higher interest rates, too.
Understanding your responsibilities and options can help limit the penalties. Here’s what to know about personal guarantees and what to do if you can’t pay a business credit card.
What is a personal guarantee for business cards?
A personal guarantee is a promise that if your business can’t pay its credit card bill, you’ll do so personally.
Think of it as similar to co-signing a credit card for your business. Ideally, the business takes care of its bills. But if it doesn't, you have to.
Personal guarantees can come into play if a business shuts down, goes bankrupt or simply stops payment. In such instances, credit card issuers can sue whoever signed the guarantee for the unpaid debt.
Why do business credit cards require personal guarantees?
Personal guarantees provide some assurance to the credit card company that charges will be paid regardless of what happens with the business. It's one reason you have to supply your Social Security number when you apply. The issuer is checking your personal credit to gauge how likely you are to repay the debt if it comes to that.
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. In general, a company must be well established before corporate cards become an option. They're not for side hustles or boot-strapped startups.
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.
Who has to provide a personal guarantee?
All business types must agree to a personal guarantee on a credit card application. That includes limited liability companies (LLCs) and corporations.
Those business structures generally protect against personal liability for business debts. But even if you have limited liability protections, a personal guarantee gives the credit card issuer the explicit right to come to you personally for payment.
The terms and conditions typically spell out the personal guarantee when you apply for a business credit card. 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 can happen 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 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 annual percentage rate, or APR, for business credit cards may be 29.99% or more. That’s about 10 percentage points higher than standard APRs. And you may have to pay that higher APR for a long time. For instance, AmEx business customers usually must make at least 12 consecutive on-time payments.
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. But most business cards also report activity to personal credit bureaus if you’re seriously behind on your bill. If that happens, it can lower your credit score 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. 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, 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 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. Be proactive and compare business loan options before you start missing payments.
After a late payment hits your personal credit report, unfortunately, most of these options are off the table.
Is there business credit card debt forgiveness?
Strictly speaking, 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. Instead of creating a long-term payoff plan, debt settlement companies get creditors to take less than they’re owed. To do this, they advise you to not pay those bills. This is risky as 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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