What's a fair card arrangement in a business partnership?

Who gets the perks, who takes the risk and how does it affect your personal credit?

Your Business Credit columnist Elaine Pofeldt
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, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

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Question Dear Your Business Credit,
I’m a first-year law student, but before law school, I started a logistics company with my partner. The company grosses about $500,000 a year.

When I started, my partner started to receive a salary for taking care of all the work. Also, both of the company’s credit cards (American Express business cards), which are used to spend a substantial amount every month, are under his name.

My question: Is he reaping all of the benefits now? Before, the credit payment was split, so we both would spend half and pay at the end of the month. What is fair now?

Also, how much does my company Dun & Bradstreet score affect the value of my company? I have a $50,000 liability that I would like to now refinance at a rate lower than the ridiculous 12 percent. – Erick

Answer Dear Erick,
These are great questions. I wrote to you for more clarification of your situation, but I did not hear back, so I will have to work with the information at hand.

It sounds as if you are a full-time student and your partner is still doing all of the work in the business. As an objective observer, it sounds as if he is the only one who should be getting a salary. If you are doing some work for the business, such as consulting, but are not getting paid for it, you could work out arrangements through which you get paid an hourly rate or some other form of compensation for what you contribute so that you don’t feel resentful.

I didn’t understand what you meant when you said, “Before, the credit payment was split, so we both would spend half and pay at the end of the month,” so unfortunately, I can’t address that part.

Is it fair for him to keep the American Express card in his name?

That really depends. By keeping the debts in his name, your partner is taking on a substantial amount of risk. While the business is bringing in $500,000 in annual revenue, you don’t say if it is profitable, and it has $50,000 in debt. If the business is losing money, maxing out the card and/or paying the American Express bill late, the arrangement could pose risks to his personal credit.

How one uses a business card can affect your business credit, as I covered in a recent column, “Business credit card can damage your personal credit.” In that case, he may be wondering if it is fair for him to keep the bill in his name.

But let’s assume the business does stay current on its bills and isn’t maxing out the card. Yes, he could be benefiting from building his credit and from any points accumulated, unless you arranged for those to be used by the business to cover business expenses.

If you feel this arrangement is no longer fair, you could offer to open up a card in your name and start using your card for some of the charges, but bear in mind that you also will be assuming some risks by doing that. If you are not working while in school, getting a card with a high credit limit might also be difficult.

Business valuations are pretty complicated and look at many factors, so it isn’t possible for me to say how much your Dun & Bradstreet score comes into play. If you are serious about wanting to determine the value of your business, I would ask industry colleagues to refer you to an independent business valuation expert.

You can get a ballpark idea by using the sample valuation report provided by BizBuySell, a large marketplace for small businesses. It will cost you $19.95 to $59.95, depending on the total number of available businesses for sale and sold that are analyzed in the report. 

Your firm’s Dun & Bradstreet score does, of course, affect your business credit, but it is not the only score that lenders use to evaluate a business’s creditworthiness. You also need to pay attention to your business’s scores from Experian and Equifax, as I discussed in a recent column, “How to check a small business’s credit report.

Typically, lenders also look at a small business owner’s personal credit when deciding whether to make a loan. What this means is if you or your partner wants to get a new card to do a balance transfer or refinance your liability, working to improve your personal credit by, for instance, paying down high balances, should help you in your quest for a lower interest rate.

If your business partner has high credit utilization and you have access to additional credit under your own name, doing a balance transfer to a card offering a 0-percent interest deal could enable you to get access to some of the benefits, such as the rewards points – but only if you stay current on your bills.

Good luck! 

See related: How to check a small business’s credit report, 5 things you should know about business credit scores

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Updated: 03-23-2019