If your significant other has made financial mistakes in the past and hasn’t saved any cash to start a business, don’t sign up for a business credit card. Many businesses fail due to cash flow issues, and your personal credit will be on the line if your partner can’t make payments on the card.
Dear Your Business Credit,
My boyfriend wants to leave his job and start a business. He made some mistakes with his finances in the past and has “fair” credit. I have excellent credit.
He would like me to open a business credit card that he will use to finance business purchases, as he isn’t able to save up enough money on his own to buy everything he needs. He needs about $3,000 to get going.
I’m on the fence about whether to do this. What is your advice? – Candy
Most of us want to help the people we love when they are going after a big dream, but this is one case where it would be a mistake.
There are some red flags that stand out for me in this situation. First, as you point out, your boyfriend has made financial mistakes in the past and does not have very good credit now.
You haven’t mentioned any indicators that he has changed the way he handles his finances, which leads me to believe he’d handle this credit card in a similar way.
Starting a business purely on debt is a bad strategy
Another warning sign is that he has not been able to save up money to finance the business. If there is one skill that’s essential to small business survival, it’s being able to conserve and manage cash.
Someone who is determined to start a business and needs $3,000 will find a way to do it, maybe by taking on freelance work to supplement their day job, driving for a ride-share service or getting a part-time job.
Or, they will start the business gradually, ramping up as money starts to flow into the business. Three thousand dollars is not a small amount of money, but we’re not talking about millions of dollars, either.
Someone who isn’t a saver who starts a business by borrowing money isn’t setting himself up for success. Many businesses fail because of cash flow challenges or an inability to turn a profit. One thing that can erode business profits is high costs. Debt can contribute to the startup’s overhead.
See related: Starting a business with a romantic partner: Should you get a joint credit card?
Your personal credit will be at stake
The other issue that concerns me is that for most business credit cards, you will need to personally guarantee the debt. Given that you have an excellent credit profile, you may qualify for a card with a high credit limit.
What if your boyfriend runs up a lot of debt and can’t pay it back — or pays the bill late? You will be on the hook for any debt he can’t pay, and if he becomes seriously delinquent, some business credit cards will report this to the credit bureaus that track your personal credit score.
Your boyfriend may not be happy to hear this, but my advice is to encourage him to take it more slowly with the business and help him come up with a plan for saving the $3,000 over the next year.
Then, support him in saving it or earning it on the side. If you go out to eat a lot, for instance, suggest cooking at home sometimes and watching a movie, so you both can save money. If you like to travel together, plan a “staycation” so he can save the money for the business.
To help him save, suggest that he sets up an automatic deduction from his main bank account that deposits a specific amount each month into a savings account for the business. If he saves $250 a month for the next year, he’ll have his $3,000.
Ultimately, the best gift you can give him in this situation is to help him learn to manage his finances well. That’s a skill that will help him many times over as an entrepreneur.