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The information for the following product(s) has been collected independently by Business Insider: Valley Visa® Secured Business Credit Card, FNBO Business Edition® Secured Mastercard® Credit Card, Bank of America Business Advantage Unlimited Cash Rewards Secured Business Credit Card, Capital One Spark 1% Classic†. The details for these products have not been reviewed or provided by the issuer.
- Using a secured business credit card can help new or struggling companies build or repair credit.
- Companies deposit cash with lending institutions to qualify for secured business credit cards.
- Secured business credit cards have some drawbacks but they’re easier to obtain than unsecured cards.
Introduction to secured business credit cards
Secured business credit cards are financial tools designed for businesses looking to establish or repair credit. To qualify for these cards, businesses must put down a cash deposit with a lending institution — the major difference from traditional, unsecured business credit cards.
Business Credit Cards 101
A small business credit card provides a revolving line of credit that allows a company to pay off transactions slightly later. Businesses might use the company card to cover unexpected costs or make purchases while waiting for revenue.
A company usually needs to show credit history to obtain a business credit card, and typically must submit an employer identification number (EIN) as part of the application. Some lenders also require a personal guarantor and a credit check when business owners apply for business credit cards.
How secured business credit cards work
New businesses with no credit history or companies with poor credit may struggle to qualify for lines of credit. Getting a secured business credit card can help these companies establish, build, or repair credit.
The “secured” part of the product name refers to the cash deposit required by a bank or other institution issuing the card. Think of it like the collateral supplied to secure a loan; the deposit for the card secures repayment to the lender in case of default.
That doesn’t mean a secured business credit card works like a debit card. Secured business credit cards function just like any other credit card. You cannot use your deposit balance to make regular monthly payments toward the balance, nor can you touch those funds while your account is secured.
Comparing secured and unsecured business credit cards
Choosing between a secured or unsecured business credit card depends on your company’s financial situation. An unsecured credit card typically offers more flexible terms, but requires a better credit profile for approval.
What is an unsecured business credit card?
Most mainstream credit cards are unsecured, meaning they don’t require a cash deposit for approval.
An unsecured card makes sense if a business has a strong credit score and can keep up with regular payments. However, an unsecured card may not be an option if a company has suffered past financial setbacks that damaged its credit score. Startups or fledgling small businesses also might find it hard to qualify without prior credit history.
Unsecured business credit cards often come with high interest rates, additional fees, annual fees, and returned-check fees. However, they’re a means to an end: building good credit and qualifying for an unsecured line of credit in the future.
How is a secured business credit card different?
From an issuer’s perspective, secured business credit cards carry less risk than unsecured cards because of the cash deposit requirement, which makes these cards easier for many applicants to obtain.
The credit limit on a secured business credit card represents the cardholder’s purchasing power and depends on the amount of money on hold with the issuer. For example, if a business puts down a $1,000 deposit, its secured card credit limit typically maxes out at $1,000. If the business doesn’t pay back what it owes, the credit card issuer will keep that cash deposit.
Benefits of using a secured business credit card
Secured business credit cards come with some restrictions, but they also offer several benefits:
Build credit history with responsible use over time
Reliably paying off the monthly balance on a secured business credit card will help build a company’s credit score. A good score can help a business obtain loans, new lines of credit, or unsecured credit cards in the future.
Plus, if a business owner has enough cash for collateral, there’s more value in using that money to build credit history through a secured credit card than just spending it as cash. Transactions made via debit card are not typically reported to the three major credit agencies.
Earn rewards and take advantage of benefits or protections
Some of the best secured business credit cards, like many personal credit cards, offer rewards or benefits that can benefit a business. These perks can include travel insurance, cash back, or purchase protections.
It’s easier to qualify for a small business credit card
For a business without strong, established credit history, a secured card offers an accessible route to building credit — provided the company has cash funds on hand to secure the line of credit.
A secured business credit card pays off during tax season
Entrepreneurs can easily separate their professional and personal expenses when dedicating a card solely for business use. That helps streamline the filing process come tax season.
Manage debt responsibly with a secured business card
While the collateral involved in a secured card lessens risk for the lender, it also ties the card’s credit limit to a tangible cash deposit. For business owners uneasy with the prospect of taking on revolving debt, even in the short term, that spend ceiling might provide reassurance as they develop their credit savvy. However, only enter into a cardholder agreement if you’re confident in your ability to keep up with payments.
Building credit with a secured business credit card
Like with any credit card, issuers will report secured cardholders’ payment history to the big three credit agencies. If a business is on time with payments, that will positively affect their credit score and make it easier to qualify for credit cards in the future — mission accomplished.
Much of the same wisdom for responsible maintenance of an unsecured credit card applies to secured credit cards. Ways to increase your business credit score include making all payments on time; paying the full balance every month, or at least more than the minimum amount due; and keeping credit utilization — that is, the percentage of the credit card limit spent — at or below 10 percent.
Transitioning to an unsecured credit card
Think of a secured business credit card as a first step toward getting approved for an unsecured card.
The credit score increase from making timely payments on your secured card will show other financial institutions that you’re less of a lending risk. That makes approval for new unsecured lines of credit more likely.
Some issuers may even automatically convert your secured credit card to an unsecured one and refund your security deposit after you’ve demonstrated a pattern of responsible credit behavior over time.
Choosing the right secured business credit card
There are many variables to consider when choosing the best secured business credit card for your company’s needs.
Interest fees are one of the biggest downsides of credit cards, but some offer a zero-interest period that can help lessen some financial pressure. For business owners looking to ease into good credit habits, the Valley Visa® Secured Business Credit Card
comes with an initial offer of 0% intro APR on purchases for first six months, then 16.20% to 27.75% variable APR.
Secured business credit cards often come with lower credit limits because they’re tied to a cash deposit and intended to build or repair credit. The FNBO Business Edition® Secured Mastercard® Credit Card
, though, offers credit limits ranging from $2,000 to $100,000, as long as the cash security deposit equals 110% of the limit.
If earning rewards while building credit is important, the Bank of America Business Advantage Unlimited Cash Rewards Secured Business Credit Card
is a good option. It earns an unlimited 1.5% cash back on every purchase, and includes free access to your Dun & Bradstreet business credit score through the bank’s online dashboard.
Similarly, the Capital One Spark 1% Classic†
is a great option for businesses that book a lot of travel. Cardholders earn unlimited 1% cash back on all purchases, plus 5% cash back when booking hotels and rental cars through the Capital One Travel portal.
Secured business credit card frequently asked questions
Most businesses can qualify for a secured business credit card, since the credit limit is typically based on the amount of the security deposit rather than the business’s credit history. This makes secured cards accessible to businesses with limited or poor credit history.
The deposit required for a secured business credit card varies by issuer, but generally ranges from a few hundred to several thousand dollars, which typically determines your credit limit on the card. Businesses should consider how much they can reasonably deposit and how much credit they need to manage their expenses effectively.
While not as common as with unsecured cards, some secured business credit cards do offer rewards programs. These can include cash back on purchases, points towards travel, or other perks. When applying, compare card offers available to you to find one that provides the best value for your business.
Building credit with a secured business credit card can take several months to over a year, depending on your company’s credit score starting point and card usage. Consistent, responsible use is key to building credit effectively.
Yes, you’ll typically get your security deposit back if you close your secured business credit card account in good standing — without an outstanding balance, for example. Some issuers may also offer to convert your card to an unsecured credit card and return your deposit while keeping the account open.
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