Your Business Credit

Business cards usually require a personal guarantee


The small-business credit card that doesn’t require good personal credit is an often-sought but seldom spotted myth

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QuestionDear Your Business Credit,
How can I get business credit cards with no personal guarantee? — Christopher


AnswerDear Christopher,
Generally speaking, you can’t. However, I have come across one business credit card that does not require you to give a personal guarantee that is available to firms with revenues above $1 million, which I discussed in a previous column (“Almost all business cards require personal guarantee“).

The most important thing to understand when you’re trying to build business credit is that most creditors will view you and your business as one and the same, even if you are legally separate entities and have a separate tax ID (also known as an Employer Identification Number, or EIN) for your business. Generally, a credit issuer such as a bank will want to know how you have handled past debts individually, by looking at your personal credit profile, until your business reaches a very substantial size.

Even then, the bank may want you to personally guarantee a loan. It is very unusual for a credit issuer to look only at the credit a business has built around a tax ID.

So how do you find a shortcut around this? There really isn’t one, unless you team up with someone who has good credit and is willing to take out loans or credit cards in the name of your business.

My suggestion is to devote the next year to building your personal credit, which, in turn, will help you get better access to the credit you need for your business. The first step is to start thinking like a lender. What behavior would you want to see in someone you loaned money to? What would scare you away? Seeing your behavior through this lens will help you make the kind of decisions that lead to a better credit profile.

A big part of this is about managing the cash flow at your business. Make sure you are collecting money that customers owe you at the time of purchase or very promptly after, and hold off on purchases until you can pay for them with money the business is earning. Those two actions will prevent you from running short of cash, so you don’t have to rely on emergency credit infusions. That may sound like an old-fashioned way of running a business, but you’d be surprised how many tech startups I run across that successfully use this method of growing a business, called “bootstrapping.”

If you are not able to get a traditional credit card, apply for a secured card. To get one, you need to make a deposit that equals the credit line being extended to you. Often, secured cards have higher interest rates than traditional cards, but if you use your card for small purchases and pay them off on time, you’ll have an opportunity to prove to creditors that you use credit responsibly.

Once you move the needle on your personal credit, try to establish some business credit under your EIN. Often, the best first step is to open a business checking account (for which you will most likely need to provide your Social Security number) and handling that account carefully.

I described some other steps you can take in a recent column, “How to build business credit separate from personal credit.” Once you get the ball rolling, you may be able to qualify for a small-business card, which, if used wisely, will give you a chance to prove your creditworthiness and possibly get more business cards.

Most of us like quick fixes, but building business credit takes more of an ongoing effort, kind of like getting in shape. Once you put in the time, though, the results can make a dramatic difference in your life as an entrepreneur. Start now and you’ll be in much better shape to get the credit you need by next year.

See related:Does a business card’s guarantor own its rewards points?, Need a small-business loan? Beat the big-bank brush-off


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