Most of the survey among business owners shows that credit card startups are one of the most popular sources of finance. For example, the Pioneer Institute has found that loans and credit loan loans are the two most commonly used startup funding methods, with at least five employees. Despite this high consumption rate, the terms for credit card financing are low. How many business owners are asked to read the card issuer's terms and conditions responding to new credit card offers at the post office? This month's column gives some signals to entrepreneurs who use credit card debt as a fundraising method and want to understand the implications of their personal guarantee.
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Most entrepreneurs have faced personal guarantee for a first time for a commercial credit card. I really can not understand that if the bank is actually a personal line of credit it can produce it as a "credit line of business". However, most companies are the only property in the country, so the difference between personal loans and commercial loans is not clear from the bank's perspective. If it's not about your business, you're the true warranty of all business loans. Therefore, if your company's slow sale is only one quarter and you rely on your credit card payments, your personal credibility and personal credibility will be in danger. (For more information about creating a credit score for your business, see "Do you need a great credit to start a business?")
Even if it is your business, your bank or credit card issuer may need to ensure business credit line. In practice, most banks require shareholders to ensure commercial credit lines with substantial proprietary rights. Typically, more than 25% of the employers must sign the guarantee form if the credit line is more than $ 5,000. In addition, most guaranteed forms need joint and various responsibilities. This means that all the guarantees are responsible for the full loan amount, even if they are not the full owners of the business. Guarantee can be processed individually or collectively. (The state varies from state to state, contact your lawyer for details.)
When you get new partners for your business, it is important to include a provision in the partnership agreement that forces them to accept a personal guarantee for all existing corporate loans. In many states, new partners are not automatically responsible for the previous loan, so this issue should be addressed exclusively. The goal of spreading as much as possible responsibility to a person is to reduce the risk.
Note that there may be room for negotiation while establishing a credit line with a local bank or local small lender. For example, it may be requested that some private real estate will be excluded from the guarantee or the guaranteed percentage of the emergency will decrease as the company reaches or exceeds certain net asset threshold. Private loan is also a subject of negotiations with relatives and other business partners. However, for credit card issuers, the proposal for business loans is usually a stupid or holiday proposal - and if you want a card, you must accept a personal guarantee.
For small businesses that are struggling to find financing, credit card credit may be attractive - if there is no single option. The process of credit card debt is a scary proposal, but many of the results have been proven. If you want to use a credit card to finance your business partly or completely, you must first read the fine print before answering your next credit card offer in the email. Understanding the risks before accepting the proposal can save you many financial troubles in the future.