Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes “Your Business Credit,” a weekly column about small business and credit, for CreditCards.com.
I am selling my small business to my business parner. Can I also transfer my business credit card debt to him?
You can transfer the debt as part of an asset sale, or however the debt should be handled according to your business buy-sell agreement, if you signed one when the business was formed.
Then, one option for transferring the debt would be through a balance transfer.
Regardless of what option you choose, however, make sure to put everything in writing.
Dear Your Business Credit,
If I opened up our business credit cards using my Social Security number but have elected to transfer my percentage of ownership to my only partner, is there a way to also transfer the credit card debt to him? – Matthew
When small businesses are sold it is usually done through an asset sale, where the seller and buyer negotiate the transfer of the assets and liabilities.
The liabilities would include debts. You could arrange for your partner to assume these debts under this agreement.
Transferring business card debt: Seek legal advice
Handling business debts is one area that leads to a lot of stress and heartache if not addressed properly, based on the letters I get at Creditcards.com.
When you throw a transfer of business ownership into the mix, there’s a lot that can go wrong if you’re not on top of the details.
Because of this, I’d highly recommend you involve an attorney to make sure it is done properly.
I’d ask your attorney to look back at your business buy-sell agreement, if you signed one when you formed the business. The language may address how debts will be handled if the business is sold or one of you buys the other out.
Options for transferring business card debt
One simple option you could consider is to suggest that your partner do a balance transfer to a business credit card in his name. Not all cards allow this, so he would need to inquire if this is possible.
If he is able to secure a 0-percent interest deal, this could end up being a better arrangement for him than simply assuming the debt, depending on the current interest rate.
Your ability to do this depends on your partner having good-enough credit to get a business credit card of his own, so this may or may not be available to you.
Handle debt properly when selling a business
You didn’t mention whether your partner will be paying you money for your share of the business or if you are simply transferring ownership to him with no cash changing hands.
In either case it is important to handle the transaction, and any debt transfers associated with it, in a way that follows the laws of your state. Opting for a local attorney who knows local laws well is a good idea.
As I discussed in an earlier column, “What happens to my credit accounts after selling my business?”, you are responsible for any debts on your credit cards if you are the primary cardholder.
Therefore, there’s some risk to you if the debts are not handled properly. Business credit cards may report to credit bureaus that track your personal credit if your debts become delinquent, so this could have lasting implications for you.
Tip: If you’re opening a business with a partner, you might be considering applying for a joint card together. However, getting a joint bank account and each applying for a card separately might be wiser. Read “Opening a business with a partner: Should you apply for a joint card together?” to learn more.
Make sure to put everything on paper
In case you are considering a verbal or informal agreement that your partner will pay down the card every month, I would rule that out.
No matter how well you know him or how honest he is, you have no guarantee he will pay the credit card bills on time.
If, for instance, he has an unexpected medical emergency and racks up huge hospital bills, he may not be able to stay current, even with the best intentions. You’ll have little recourse in that situation but to pay the bill yourself.
When it comes to business card debt, it’s best to handle everything by the book, so you’re not dealing with unexpected headaches in years to come.