What is a Personal Guarantee & Why You Need to Sign it for Credit Card Processing

April 13, 2016

The worst roadblock merchants have to overcome when they want to work with a credit card processor is signing a personal guarantee.

There’s a lot of anger and confusion with the thought of signing a personal guarantee with a credit card processor. We’ve seen many merchants sign every other part of a contract and just stop short of signing a personal guarantee.

Rather than making you uneasy, a personal guarantee is not a huge concern for a merchant, but means everything for your credit card processing company.

What a personal guarantee means in the credit card processing world

When you sign up to process credit cards for your business, it’s not just signing up to pay fees to the credit card companies. Entering into this service involves some risk on the part of payment processing companies.

The processor is essentially giving you a loan for the transactions you run every month. They are acting on your behalf to assure your account has the money to pay for the fees owed to the credit card companies (Visa, MC, Discover, Amex, etc). They are also making sure the transactions you run, will not be fraudulent in nature.

To summarize, a personal guarantee is similar to taking a mortgage out at a bank. The bank is taking a risk by granting you a loan. They want you to send them banking statements, tax returns, and sign a contract agreeing to pay back your debt. You’re giving them proof that your business is a safe investment.

Instead of a massive loan, a personal guarantee with a credit card processor is agreeing you will have sufficient funds in your merchant account to pay your credit card fees.

A personal guarantee is not a guarantee of volume

While there may be an exception, it’s typical for a credit card processing company to use this as a promise of guaranteed transaction volume. So, you’re guaranteed to pay the fees associated in your deal for whatever credit cards you run. These fees, are the same ones that are automatically deducted on your monthly processing statement.

In reality, when you sign a personal guarantee with a processor, you are agreeing that you are going to pay the credit card fees every month to your processor. This would be something you intend to do anyway.

To put it into perspective, when you sign up and give your checking account number to a credit card processor, they will automatically deduct the total transaction fees that are due once a month.

Even if you run a smaller volume of transactions than the month before, you will only have to pay that percentage worked out with your processor for those fees.

Chances are, even if your business is going through a rough patch, you’re already fulfilling that personal guarantee by allowing your processor to deduct the processing fees every month.

It’s not as terrifying you think

Personal guarantees can be intimidating, but you’re already fulfilling the needs, by letting the processor deduct the fees every month. Signing is just the formality.

Want to learn more about what a good payment processor can do for you?

Read about the success these merchants had with their credit card processing.

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