One of the biggest advantages of business credit cards is that they offer a personal guarantee to borrowers. Basically, this means that if you are not able to repay the credit account, you will not be sued by the lender. This can be quite an important factor in some situations. If you are about to purchase a property for example, you will need to be able to get your finances in order and without a personal guarantee, it will be hard to secure financing for this purchase.
On the other hand, sometimes lenders are not willing to give personal guarantees. Why is this? Obviously, if you have defaulted on credit before, you will probably not be approved again. Besides, even if you do have good credit, if you have not established a history of prompt payments, you will be considered a risk. As such most lenders would rather extend credit to someone who has a track record of making payments on time.
When used correctly, the business line of credit can be a very useful tool to help finance a business. However, many people do not realize that they should limit their use of this credit facility, since using it without having proper personal and business credit qualifications can result in serious damage to their credit. If you are a business owner and are thinking of applying for this type of credit, follow these three rules to make sure that your business gets the best deal.
First, business credit cards should be used as they are intended, for purchasing large amounts of capital. If you have bad credit, you will be charged higher interest rates and fees than those with good credit. Because you are seeking a business credit facility, you should seek out one that limits the amount you can borrow, so that you do not damage your credit score. You will also find that most lenders will not allow you to obtain a personal guarantee, which means that you will have no legal recourse should you default on your payments.
Second, you will also find that many business credit facilities will require a deposit of a certain percentage of the business credit line. This is because the lender needs to be sure that you can repay the loan in a timely manner. The higher the percentage of your deposit that you are willing to put up, the easier it will be for you to get the business line of credit. In fact, if you make all of your payments on time, your credit line will increase automatically, and you will not have to worry about putting any money up front. If you want to receive the benefits of this credit facility, however, you should make all of your payments on time, and you should avoid obtaining a personal guarantee or a signature loan because these will damage your credit score and make it harder to acquire additional financing.
Last, if you need to obtain a business credit with little to no personal guarantee, you will find that you will have to work extremely hard to convince potential lenders that you are a good risk. Many financial institutions will refuse to give a personal guarantee to . . . . . . new business owners, so you will have to rely on other types of collateral in order to secure business credit. You may choose to secure small lines of credit, but you may also decide to use your house as collateral, or you might even offer your car as collateral. Regardless of the type of collateral that you choose, however, it is important that you carefully consider the risks involved, because if you make all of your payments on time, your business credit will continue to grow.