If you’re operating a business, cash flow is vital; however, credit is the base that keeps everything running smoothly. A good credit profile will allow you to access more favorable financing, lower interest rates, along more flexible contracts with suppliers. When your business is brand new and your credit score is not as strong, or you’ve had financial difficulties before, obtaining approval for conventional financing may be difficult.
Secured business credit cards can be a game-changer for businesses. It acts as a reliable stepping stone that helps you build or rebuild your company’s credit while still giving you the convenience of a regular credit card.
What is a Secured Business Credit Card?
A secured business credit card provides business owners looking to rebuild or establish credit for their companies with an effective means to do just that.
Secured business credit cards require an initial security deposit that serves as collateral against lenders, typically setting your credit limit. For example, depositing $2,000 typically sets it as the cap on your card.
Here is how it works:
- An upfront deposit, typically between $500 and $5,000, is paid upon signing.
- Your card issuer uses this deposit as security if payments cannot be met on time.
- Your credit limit typically matches your deposit.
- Each payment you make will be reported to the business credit bureaus.
In short, by borrowing against your funds initially, but gradually building up credit over time, you will eventually qualify for an unsecured business credit card.
Why Businesses Choose a Secured Business Credit Card
Not every company starts with perfect credit or access to large credit lines. A secured business credit card can be useful in several situations:
New Businesses with No Credit History
If you have just launched your business, a secured card can help you quickly establish credibility with lenders.
Businesses Rebuilding Credit
If your company has dealt with late payments or debt in the past, using a secured business credit card responsibly can prove you have turned things around.
Owners with Poor Personal Credit
Many business credit cards require personal credit checks. If your score is not strong, secured business credit cards might provide an easier path towards approval.
Also read: How to Build Business Credit for a Startup
Benefits of Using a Secured Business Credit Card
A secured business credit card offers more than simply credit-building capability. Also, investing can bring tangible financial advantages:
Builds Your Business Credit Profile
Payment will be reported to the major business credit bureaus like Dun & Bradstreet, Experian Business, along Equifax Business to increase your credit score over time.
Separates Business and Personal Finances
Adopting a dedicated business credit card helps streamline expenses while safeguarding both you and your personal credit history.
Increase Your Chances of Future Funding
Engagement in responsible use increases your chances for future financing options such as unsecured cards, loans, or credit lines later on.
Helps Control Spending
Since the limit is tied to your deposit, overspending becomes less likely, which is helpful when cash flow is tight.
Access to Cardholder Perks
Some secured cards provide rewards, fraud protection, and expense management tools.
Drawbacks to Keep in Mind
- While a secured business credit card has clear benefits, there are a few downsides:
- You need cash for the deposit.
- Your spending limit is tied directly to your deposit amount.
- Some cards charge an annual fee.
- Carrying a balance can lead to higher interest costs.
How to Select the Right Secured Business Credit Card
When comparing secured business credit cards, consider the following:
- Deposit Requirements: Choose a card with an affordable deposit amount.
- Credit Reporting: Ensure it reports to all major business credit bureaus.
- Fees: Compare annual fees, late fees, and other charges.
- Upgrade Path: Choose credit cards that allow you to upgrade to unsecured credit after demonstrating responsible use.
- Extra Features: Expense tracking, employee cards, and rewards can add extra value.
Tips for Using a Secured Business Credit Card Effectively
Here are some tips for using a secured business credit card.
- Pay every bill on time.
- Keep your balance under 30% of your limit.
- Review statements monthly.
- Ask about upgrading after 6 to 12 months of responsible use.
Also read: 15 Finance Companies For Small Business Loans with Bad Credit score
4 Best Secured Business Credit Card Options
1. Valley Bank Visa® Secured Business Credit Card
Earn 1% cash back on all purchases without an annual fee and credit limits up to $25,000. Requiring only an upfront deposit equaling approximately 110% of your limit, this card offers six months with zero intro APR and fraud protection reporting to major bureaus.
- Deposit: About 110% of the desired limit (up to $25,000)
- Annual Fee: $0
- Rewards: 1% unlimited cash back
- Intro APR: 0% for six months
- Perks: High limits, fraud protection, credit bureau reporting
2. First National Bank Business Edition® Secured Visa Card
With high credit limits ranging from $2,200 to $110,000 and deposits equal to 110% of that limit, our deposit account provides credit monitoring, spending reports, fraud protection, and an annual fee of just $39.
- Deposit: 110% of credit limit
- Annual Fee: $39
- Rewards: None
- Perks: Credit monitoring, fraud protection, Visa zero liability
3. Capital One Quicksilver Secured Cash Rewards Credit Card
Take advantage of 1.5% cash back on every purchase and no annual fee with this fully refundable $200 security deposit card and build credit responsibly, gradually upgrading it as you go while keeping all rewards earned along the way!
- Deposit: Starting at $200
- Annual Fee: $0
- Rewards: 1.5% cash back
- Perks: Upgrade option, no foreign transaction fees
4. Bank of America® Business Advantage Unlimited Cash Rewards Secured Mastercard®
It requires a $1,000 minimum deposit, charges no annual fee, and gives you unlimited 1.5% cash back. The card reports to business credit bureaus and provides cash flow management tools to help you stay on top of your finances.
- Deposit: $1,000 minimum
- Annual Fee: $0
- Rewards: 1.5% cash back on purchases
- Perks: Credit bureau reporting, Business Advantage 360 tools
Summing Up
A secured business credit card offers entrepreneurs an effective means of rebuilding their credit profile. Though initial payment will likely be necessary, its potential advantages, like improving credit scores and accessing better financing, might outweigh this cost. By paying on-time installments while keeping balances at minimum levels and practicing prudent spending, you’ll be able to control expenses as you establish long-term business growth alongside financial security.
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