A tale of two credits - A business card with personal liability


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A tale of two credits - A business card with personal liability:

A tale of two credits - A business card with personal liability Concept of Credit in B usiness The world of business thrives and survives on the concept of credit, with trust and credibility playing a major role in establishing credit rules. No business can work by paying dues immediately, primarily due to the risk associated with a particular venture. For example, Mr. Joe owns a restaurant and purchases vegetables and poultry from a local supplier . He pays the supplier every two weeks, taking the supplies on credit till he can make his payment. Similarly, the supplier sources his produce from local farms and pays them every week, taking the supplies on credit till the payment is made. It is this cycle of credit which keeps businesses running today .


What is a business credit card ? Modern technology has enabled businesses to take credit from multiple sources using their credit card, helping them simplify transactions and provide detailed information about their credit history. A business credit card is similar to a personal credit card, except that it typically has a higher credit limit and multiple cards can be provided to employees under the same business name. A business credit card is perfect for all categories of businesses, be it a small grocery store or an independent conglomeration, providing great benefits to businessmen and women all over the globe . How your personal liability comes into fray when you opt for a business credit card Applying for a business card is pretty simple, provided you have a legitimate business. Most businesses have an element of risk involved in their operation and banks are vary of this fact. To safeguard their interest, banks generally insist on having the owner sign a personal liability clause while processing a business credit card application. This typically means that you are responsible for the credit record of your business and the bank can recover any defaulted payments from you, essentially making you liable for how your business uses credit.


For example, Mr. Joe’s restaurant does not perform well in a particular quarter and the business has dues amounting to $ 50,000. The bank to whom he owes this amount can begin proceedings to recover this amount from him, due to the personal liability clause signed by him . A bank is a financial institution with an aim to make profits. Failure of businesses which have obtained credit through their business cards translates into a loss for them and the personal liability condition has been inserted to hold the owner accountable for a particular business . Mix it up or separate ? While it is ideal to keep your personal and professional life separate, the real world does not let you separate the two completely. Almost all banks insist on having the business owner/promoters sign the personal liability agreement before sanctioning a business credit card. It is, however, possible to segregate your personal credit from your business credit by treading carefully and diligently. Failure to pay your business credit dues could be reflected on your personal credit history, thereby having an adverse effect on your future credit prospects.


In the event of your business dues mounting, the bank could go after your personal assets to recover these dues, leaving you with no other option but to put your assets on the line. You could try and negotiate with the bank to provide you more time to repay these dues, depending on your previous history with the bank . A business credit card is a great asset for a business but like someone once said “With great power comes great responsibility” and the more responsible you are with your card, the more rewards you can reap .

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