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Your Business Credit

Limit business partners’ access to your credit

Summary

Don’t let partners in small business sink your credit by ringing up charges on a card in your name.

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QuestionDear Your Business Credit,
Hi, Elaine. I have a question regarding business credit. I partner with two other people in a business. We went to open a business credit card at a U.S. bank. One has no income, one didn’t qualify to open the business credit card for the company – and that left me.

We were able to open the business credit card using my info. I assume the business credit card is under my name, which makes me the primary cardholder. As time went on, things didn’t work out the way I expected, so I decided to get out of the business. I’m trying to see the best way to do this without letting the business credit card affect my personal credit score.

I just received an email that the business credit card’s credit limit is now increased to $10,000. I assume one of my partners probably asked for an increase, or does the bank increase the credit limit?

I have a very good credit score. I have one credit card (credit limit $6,000 and balance $5,000) and a second credit card at $5,000 with no balance. The third credit card is the business credit card, and the balance on that card is probably $5,000. Any advice you can provide will be greatly appreciated. Thanks! – Koua

 

AnswerDear Koua,
As you’ve now discovered, many small businesses don’t work out the way the founders envision. Often, it’s smart to cut your losses quickly and move on – but getting disentangled financially can take some time and effort.

Your challenge is protecting your personal credit profile at a time when it sounds as if your partners still have access to your business credit card account. Most business credit cards require a personal guarantee, so very likely you are personally on the hook for the balance and any new charges they make. Many business credit card issuers do not report business credit cards without a personal guarantee unless the cards have gone into default. However, if the reason you are leaving is that the business is unsuccessful, default could be a real possibility.

My recommendation is to work out a plan with your partners to quickly pay off the $5,000 balance through revenue from the business. In the meantime, ask them to stop using the credit card. If you have issued additional credit cards to them, ask the credit card company how to terminate those cards and your partners’ access to your credit. Given that one of your partners has no income and the other has poor credit, they don’t seem likely to be able to help you if, for instance, the business doesn’t make enough money to cover the minimum monthly charges. Why let the balance go any higher?

Your letter underlines why it is important to proceed cautiously when using your personal credit on behalf of a business with other owners. It feels good to be the hero who comes up with the cash or credit a business needs to keep going, but doing so can lead to big regrets if things go south. Sometimes, it is better to finance growth out of cash flow or start it on a more limited basis while the founders keep their day jobs.

You can’t go back in time and do things differently. What you can do is extricate yourself from financing any additional purchases at the business – and move ahead on that quickly, so you’re not responsible for paying an even higher balance.

See related: How your business can avoid chargebacks, account problems, Business card benefits outweigh limitations for most businesses

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