Combating Commercial Cards’ Need For The Personal Guarantee

In fast-growth small businesses, the focus is on expanding the top line — not tackling the paper chase in the back office. Yet, without the resources to invest in finance teams, many firms simply maintain the status quo of unaudited spend, the end result being a lot of wasted spend.

It’s an area of business spend friction that is driving a newfound resurgence in commercial card innovation that the card industry hasn’t seen in decades, with FinTech firms stepping in to take advantage of card transaction data.

However, according to Eric Glyman, CEO and Co-founder of corporate card company Ramp, commercial card products continue to encourage businesses to spend more, not less — and they are often unable to address the particular spend management challenges of fast-growing businesses.

“For companies between 40 and 250 employees, there is a really big unmet need, and a lot of wasted spend,” Glyman recently told Karen Webster. “Businesses are at the point where they’re maximizing their key product offering[s], trying to grow revenue and their finance teams are stretched. They don’t have the manpower to audit expenses, which can get out of whack, for one reason or another.”

The Biggest Culprits Of Waste

There are two areas that Glyman identified — that often cause the greatest waste of spend for companies — in which commercial cards have a significant opportunity for optimization: enterprise software spend and employee expenses.

In the software arena, duplicate subscriptions and opaque pricing models are costing businesses thousands of dollars. Glyman pointed to one company, for example, that had seven outstanding subscriptions for the same software product. In another case, he highlighted a firm that was paying several hundred dollars a month for a software product that had offered an unlimited subscription package for only $99.

“Businesses are overpaying for a lot of duplicate software,” he said. “It wasn’t that this company wasn’t thinking about this. It’s that [it] had so any clients to manage, and no one had looked at the prices of software [it was] using in years.”

One particular software product adding weight to companies’ bottom lines is expense management, an area of business spend filled with friction points.

Continued reliance on employees footing the bill — and the use of a company debit card or ACH — means a lost opportunity to capture cash-back rebates, as well as capture employee transaction data directly to ensure purchases are authorized and optimized. Expensive third-party software solutions can struggle to capture high-quality card transaction data in real time, too.

For Ramp, there are several opportunities to optimize spend in this space. One is to offer its own, integrated expense management platform for free, reducing spend for clients in the form of software and data-capture costs. It also means automating product price comparison to ensure that workers can choose the most affordable option.

In addition to cash-back rewards, identifying duplicate subscriptions, analyzing spend patterns and data-entry automation can all inflate savings significantly, noted Glyman.

Nixing The Personal Guarantee

Migrating business spend to a commercial card generates valuable transaction data, but taking full advantage of that data is often easier said than done. Data integration is key to automated data entry, spend analytics and the like, but there is another major area of opportunity for commercial cards to tackle, which has historically been one of the biggest challenges for business owners: personal guarantees.

Unless a business is at least five years old, its credit profile is likely quite thin, leaving banks to rely on personal guarantees to underwrite an account. That leaves an individual, like a business owner, on the hook for a company’s debt — even though an individual’s own credit profile is an inaccurate prediction of whether a company will succeed or fail.

Glyman recalled his own experience with this pain point.

When Paribus, a price protection company that he had previously founded, was acquired by Capital One in 2016, the merger temporarily caused some inefficiencies in managing Paribus’ card payments. A missed payment led to Glyman — who provided the personal guarantee on Paribus’ company card — receiving a collections call for a six-figure payment.

“A personal guarantee is a scary thing, and can really creep up on people,” he said. “With the changes that have happened in underwriting and risk assessment, it’s just one of the things that should go.”

Data integration capabilities now allow companies like Ramp to connect directly into a firm’s bank data, using actual cash positions to assess creditworthiness. This is one of the most significant advances in commercial card technology that Glyman has seen as of late, not only enabling banks to use a company’s actual cash position to underwrite an account, but allowing for dynamic credit limits based on that account’s changing cash flows.

Commercial cards continue to gain traction in business spend, particularly as FinTech firms step in with value-added opportunities in spend analytics and rewards programs. Yet, with issues like data-capture limitations and the continued use of personal guarantees, the corporate card space has a long way to go to optimize business spend.

For Glyman, by shifting corporate card products’ goals from encouraging businesses to spend more to incentivizing them to spend less, the payment tool can accelerate adoption by tackling pain points that other payment rails cannot.

“We should make it easier for businesses to spend less, and use money on things that grow their business, rather than spend money on products trying to monetize them and take their cash away,” he said.