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Term: Business Guarantee

18 Jun 2015

DEFINITION of ‘Business Guarantee’
A credit card agreement in which any debts accrued on a corporate card are considered the sole responsibility of the business. Business guarantees shift responsibility for debts incurred by the business owner to the business itself.

INVESTOPEDIA EXPLAINS ‘Business Guarantee’
When a business owner signs a credit card agreement, the credit card company typically assigns liability for any debts incurred to the sole signatory. The credit card company treats all charges as if they were made by the business, rather than any individual card holder.

Business guarantees are especially useful to small businesses. Business credit cards are often used to separate the finances of the business from that of the business owner, though the business owner is often required to provide detailed financial information and undergo a credit check when initially applying for the card. This is because credit card companies may not know as much about the financial health of the business, but are easily able to conduct a background check on an individual. In some cases, the credit card issuer will agree to lend to the business but will require the personal guarantee of the business owner.

Provisions in the credit card agreement indicate who is liable for any debts incurred on the card. Business owners will want to make sure that they understand who is responsible for debts, especially in the case that the business fails.

Credit cards with business guarantees are a relative rarity, especially in terms of credit card companies issuing a card to a small business. This type of guarantee is more likely to be found in agreements made with larger businesses, as these businesses likely have a longer history of financial stability that the issuer can examine. If a business owner wants to retain a separation of business and personal expenses, he or she may consider alternative forms of funding.

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