Director’s personal guarantee on a business credit card: what you sign

What a personal guarantee is

Capital on Tap’s own FAQ gives a definition that is hard to improve on: “A personal guarantee is a legally binding agreement from a company director or shareholder to be personally responsible for repaying the company’s credit card debt if the business is unable to.”

The company is the borrower. The credit agreement is between Capital on Tap and the company, the card is in the company’s name and the statements are the company’s. The guarantee is a second, separate contract between Capital on Tap and you as an individual, in which you promise to pay if the company does not. It sits behind the credit agreement and is only called on if the company fails to pay.

I have held the card for a few years on the free tier and signed a guarantee to get it, as every applicant does. Nothing on this page is legal advice; where it touches insolvency or disputes between directors, it says so and points you to a professional.

What Capital on Tap requires

The FAQ’s answer to “Does Capital on Tap require a personal guarantee?” is: “Yes, we require a personal guarantee from a director or major shareholder of the company when you apply for a business credit card.” The credit agreement puts it slightly more loosely, saying “We typically require a personal guarantee in connection with this Agreement”, but in practice the applicant signs one. The applicant must be an active UK director or a shareholder with 25% or more, which is the same population the guarantee is taken from.

The guarantee is signed electronically during the application, alongside the credit agreement. The full eligibility rules, including the turnover threshold and the CCJ rule, are on our Capital on Tap eligibility page, and the application steps are in how to apply for Capital on Tap.

What it means in practice

While the company pays its statements, the guarantee does nothing. It matters in one situation: the company owes a balance and does not pay. Then Capital on Tap can demand the amount from you personally, and if you do not pay, pursue it as it would any personal debt, through letters, collection agents and ultimately the courts. The credit agreement allows it to recover reasonable enforcement, legal and tracing costs on top of the balance.

Three features of a guarantee catch directors out. First, it is not limited to what you personally spent. Employee cards, virtual cards, Bill Pay payments and cash drawdowns all sit on the same company account, and the guarantee covers the account. Second, it survives the company. If the company goes into liquidation the debt to Capital on Tap becomes a claim in the liquidation, but your guarantee is a separate personal promise and remains enforceable against you. Third, it survives your resignation as a director unless the lender releases you, which is covered below.

You are the Guarantor in the terms

Capital on Tap’s Authorised User Terms and Conditions, which govern employee and additional cardholders, name the person who applied on behalf of the business as the “Representative”, and add in the same sentence that this person is “also referred to as the ‘Guarantor’”. The same document says that if there are guarantees in relation to the credit account, each guarantor agrees that the guarantee “shall continue in full force and effect” and that each guarantor “shall be liable for any acts or omissions of any Cardholder and/or Authorised User in accordance with the terms of its Guarantee”.

That wording is the clearest statement of the point above. Appointing an authorised user or issuing a cardholder a card does not shift any of the liability to them. The Representative remains the Guarantor for everything they do on the account.

How it sits with limited liability

A limited company’s shareholders are, by default, liable only for the amount unpaid on their shares, and its directors are not personally liable for company debts unless they have done something to become so. A personal guarantee is the most common way a director does something to become so. It is a voluntary carve-out from limited liability for one specific creditor and one specific debt.

That carve-out is narrower than it sometimes feels. It does not make you liable for the company’s other debts, and it does not change your position with creditors who have no guarantee. It does mean that for the card balance, the corporate veil is not there. The wider picture of how directors are exposed when a company borrows is set out in our guide to business credit cards for limited companies.

More than one director: joint and several

Where a lender takes guarantees from more than one director, the documents are commonly drafted so that liability is joint and several. That means the lender can recover the whole debt from any one guarantor and does not have to split the claim between them. The guarantors are then left to pursue each other for their shares, which in a failed company with strained relationships is not straightforward.

Capital on Tap takes its guarantee from the applicant, who must be a director or a shareholder with 25% or more. Some other issuers take guarantees from every director as a condition of the card. Whichever applies to you, read the guarantee for the words “jointly and severally” and, if there is more than one guarantor and the limit is large, agree in writing between yourselves how you would share a call on it. That is a matter for a solicitor if the sums are serious.

How other issuers handle it

Personal guarantees are standard for small-company credit cards, though issuers vary in how clearly they say so.

• Santander Business Cashback Credit Card. The product page states a guarantee is Required from all directors or members of a Ltd or LLP. That is broader than Capital on Tap’s single-applicant approach, and it is only open to a Ltd or LLP with up to two partners or directors.
• Tide business credit card. Tide brokers the Capital on Tap card, and its page states a personal guarantee is required, as you would expect for the same product.
• Funding Circle Cashback Business Credit Card. Funding Circle’s FlexiPay support page says a personal guarantee will be required from one or more directors.
• American Express business cards. Amex’s business cards are structured around a main cardmember. The British Airways Amex Accelerating Business page says the main cardmember will be liable for all charges made on employee cards. The eligibility rules also require a minimum personal income from the applicant, which tells you the individual is being assessed alongside the business.
• Barclaycard, NatWest, Lloyds, HSBC, Metro. Their product pages, as we read them, do not state whether a guarantee is required. Assume it may be asked for and check the application terms.

The comparison with Amex on every other dimension, including fees and acceptance, is in Capital on Tap vs Amex Business.

How to limit your exposure

You cannot avoid the guarantee if you want the card, but you can control how much it could ever cost you. Your exposure is, at most, the balance the company could run up, which is bounded by the credit limit. Four habits keep it small.

• Keep the limit proportionate. Capital on Tap advertises limits up to £250,000, and its FAQ notes a manual review can raise or lower the limit. Ask for the limit the business needs for a month of spend, not the largest one available. If the limit you were given is bigger than you need, you can ask for it to be reduced. My own experience, described on the credit-limit page, was the opposite problem: a limit lower than I expected. For guarantee purposes that is the safer side to be on.
• Pay in full every month. A card cleared by Direct Debit each statement never carries a balance that could become a personal debt. How to make that automatic is in how to avoid business credit card interest.
• Control who can spend. Per-card and per-transaction limits on employee cards cap what any one person can add to the account you have guaranteed.
• Close the account when winding down. If the company is ceasing to trade, clear the card and close it before the company is dissolved. An open facility with a nil balance is not a risk, but an open facility that someone still has a card for is.

If you leave the company

Resigning as a director ends your duties to the company. It does not end a guarantee you gave to a lender, because the guarantee is a contract with the lender rather than a consequence of holding office. The normal routes to being released are: the company clears and closes the account; or the lender agrees, in writing, to release you, usually because a remaining director has signed a replacement guarantee and passed the lender’s checks.

Handle this before you go, not after. Ask Capital on Tap what it needs to substitute the guarantor, get its written confirmation that you are released, and keep it. Until you have that, a company you no longer control can be adding to a balance you have promised to pay. If the remaining directors will not cooperate, take legal advice; the practical options depend on the guarantee’s wording and your shareholding.

If the company becomes insolvent

This is where the guarantee does what it was designed to do, and it is also where you should stop reading web pages and speak to an insolvency practitioner or a solicitor. In general terms: when a company enters liquidation or administration, the card balance becomes a claim against the company alongside every other creditor, and Capital on Tap can also call on the guarantee for the same amount. Paying under the guarantee does not usually give you priority in the insolvency; you step into the lender’s shoes as an ordinary creditor for what you have paid.

The credit agreement lists steps toward a voluntary arrangement, winding up, dissolution, administration or receivership among the events that let Capital on Tap act on the account, and requires you to notify it if any of them is threatened. Engaging early, both with the lender and with an adviser, generally produces better outcomes than waiting for demands. Capital on Tap’s FAQ points struggling businesses to The Finance Exchange, an independent adviser it has partnered with. None of this is advice on your situation.

Does a personal guarantee affect your personal credit file?

Signing one does not, on Capital on Tap’s account of its process. The FAQ says: “Yes, we run a soft search on your personal credit file when you apply, so applying won't affect your credit score. We only run a hard search on your business's credit file once you sign your credit agreement”, and adds that the hard search on the business file does not affect your personal file. The guarantee is not a personal credit agreement and does not appear as one.

It reaches your personal file only if it is enforced. If the company defaults, Capital on Tap calls on the guarantee and you do not pay, the debt is then yours, and a default or a County Court Judgment recorded against you personally would sit on your personal file in the ordinary way. The way to make that impossible is the one that runs through this whole page: keep the limit modest, pay the company’s card in full, and close the account cleanly when the company no longer needs it. For everything else the card does well and badly, the Capital on Tap review is the place to start.