For new businesses that have not yet established their business credit history, personal liability is a major concern. When an entrepreneur applies for a small business credit card, credit card companies would be checking on the owner’s personal credit history. Consequently, when an entrepreneur signs up his business credit cards agreement, he should be clearly aware about his personal liability.

What Is Personal Liability?

The personal liability provision protects business credit card companies from the risk of payment default in case the business fails or if the company shuts down. Under the personal liability clause, the business owner is held personally accountable to pay off all unpaid charges on the business credit card account, regardless of who made the charges. Thus, even if your employees were the ones who charged those unpaid bills in your business credit card account, you- the owner of the business must shoulder the repayment of the charges.

Because the business owner is responsible for the account, his personal credit history will also be directly affected. Unpaid bills in your business credit card account can significantly pull down your credit score or cause a negative impact on your personal credit rating. Late payments with your small business credit card will hurt your personal credit history even if you are timely with your payments with your personal credit cards.

How long will the Personal Guarantee Last?

The personal liability or personal guarantee on small business credit cards doesn’t need to be permanent. If you can prove to your business credit card company that you are diligently keeping up with your payment, you can separate your business credit and personal credit after a while.
Before applying for a small business credit card, register your company with a business credit bureau right away. You can sign up with Dun & Bradstreet to establish a separate credit history for your business right away. Remember that building business credit may take at least two years. After that, you can request your business credit card issuer to lift the personal liability agreement.

Furthermore, don’t forget to check whether your chosen small business credit card reports payments to the business credit bureaus. Take note that not all credit cards for business have this provision. If your small business credit card will not report your payments to the business credit bureaus, you will not be building business credit at all.

Small Business Credit Cards and Consumer Rights

Furthermore, business owners should be aware that certain provisions or privileges given to personal credit card holders are not available in credit cards for business. Consumer protection such as the right to dispute unauthorized charges and purchase protection may not be provided by your small business credit card, although some credit cards for business do give purchase protection and fraud protection for their customers.

This is why caution must be taken when using business credit cards. If you plan to distribute additional cards to your employees, you should make sure that they can be trusted. As the owner of the business, it is your duty to regularly monitor your employees’ spending to avoid wasteful spending.