Do New Business Credit Cards Carry Personal Liability?
Many issuers of new business credit cards will require you to agree to a personal liability provision before the account is approved. This provision makes the business card just like your personal credit card when it comes to liability. If your new business doesn't pay the card as agrees, the lender may use the personal liability agreement to collect payment from you as the owner of the business.
Personal Credit Reports
Your personal credit reports will contain a record of your business credit card because of the personal liability you agree to. This is not a problem unless your new business fails to make payments on the account. The critical issue is the stability of your business financially.
As you probably already know, new and small businesses have a high failure rate and if your business doesn't succeed your personal credit rating could suffer negatively. If the card carries a high debt load a business failure would transfer that debt to you personally.
This is important to remember if your business has a high risk of failure. If the business is not showing a profit while pushing your card balance higher and higher, you are surely taking a big risk. Should your new business be forced to close, that debt would not only be transferred to you but could increase your debt to income ratio which credit reporting agencies see as high risk behavior. You have to remember also that the damage done to your personal credit rating could last for years.
Type of Business You Are Opening
There is also a chance that credit issuing banks take into consideration the type of business you are opening. If you have worked in a particular industry for years and you are now opening your own shop that may be viewed as a low risk business.
Restaurants, boutique or specialty stores lead the list of new small business ventures most likely to fail. If your bank requires personal liability, the decision may be due to risk factors that have been assigned to certain categories of new businesses.
You can often overcome the risk of agreeing to be personally libel for your business credit account if you are able to show a good payment record over time. This is up to the lender but if your business is clearly doing well and paying the bills every month it may be a way to remove your personal finances from the equation.
As the business builds its own good record of payment with credit rating bureaus it provides leverage for you to remove yourself from being personally liable for business expenses. If your business is not new and appears to be solid, you may be able to negotiate a new credit line without taking personal responsibility.
Different Laws For New Business Credit Cards
When you use your personal credit card you have some protections under the law. For example, you can dispute billing errors within a specific time period and during that time your lender cannot cancel your card or label your account as delinquent for the disputed amount. However, business accounts don't have the same consumer protection as they are not meant to be used for personal purchases.
If you receive a shipment of merchandise that isn't what you ordered, you can't dispute the charges but must rely on the vendor to correct the problem. You can't either request the credit card company to help solve the shipment problem as you can with a personal line of credit. With other words, if you have a new business credit card, you are on your own.
Even without the protections available for consumer credit accounts it is necessary to establish new business credit cards even if only to simplify accounting. If you use the card and make payments as required your business will build its own reputation for credit and you will not need to worry about whether you will be able to pay the bills or not.
