Can I Get a Business Secured Credit Card?
According to the U.S. Small Business Administration:
- 27% of businesses claimed that they were not able to receive the funding they needed. The most frequent primary impact that a lack of funding had was preventing them from growing their business.
- 46% of all small businesses use personal credit cards. Many small businesses fail to separate business and personal expenses
- 20% of small business loans are denied due to business credit.
Business credit cards are valuable tools that can help build and run a successful operation. That said, they come with the same risks and limitations that personal credit cards bring. Credit scores, interest rates, and other factors play a role in determining whether a particular card is a good fit for your business. Secured credit cards are a good option for people with less-than-perfect credit. Because they are tied to collateral, such as a a deposit in a savings account, banks view secured credit cards as being less risky than traditional cards. If the borrower fails to pay, the bank can take ownership of the collateral to recover their funds.
What Are Business Secured Credit Cards?
Business secured credit cards help owners build or rebuild their business credit. Unlike traditional credit cards, banks issuing secured cards require collateral, which generally comes in the form of a bank account balance. In most cases, the card’s credit limit is equal to the deposit amount, and the bank does not allow the borrower to use that balance to make payments or make withdrawals. That deposit is refundable if the borrower eventually qualifies for a traditional card or wants to close their account.
Because of the security deposit, banks are more likely to approve a secured card account, often approving borrowers on the spot. Secured cards function almost identically to regular cards otherwise. The borrower makes monthly payments to cover the principal and interest, and the bank reports the payment history to the major credit bureaus. Cardholders also receive monthly statements that detail the account’s status, including the interest rate.
Features
Secured credit cards function very similarly to traditional cards, but the upfront collateral deposit makes them easier to qualify for. That said, secured business credit cards can come with higher interest rates and many have stout annual fees. Some banks offer rewards and benefits, including cash back, travel miles, and more.
- Banks often approve secured card accounts on the spot
- Secured credit cards require an upfront collateral deposit
- Borrowers can build or rebuild their credit using a secured credit card
- The card’s credit limit is almost always equal to the security deposit
Pros and Cons
Nothing is perfect, and there are some downsides to business secured credit cards that you’ll want to consider before signing on the dotted line.
Pros
- Secured cards are far easier to qualify for than traditional credit cards
- The borrower can build or rebuild their credit if payments are made on time
- Some banks offer benefits like cash back and travel miles
Cons
- Interest rates and fees are sometimes higher than traditional cards
- The borrower must have money up front to open the account
- The card’s credit limit is tied to the deposit, which can often be low
Impact of Business Credit Cards on Credit Reporting
Unfortunately, many business credit cards, both secured and unsecured, often fail to report positive payment history to credit bureaus. These cards typically require a personal guarantor in case of default, meaning the guarantor’s credit scores can be negatively impacted if the default is reported by creditors. However, positive payment history is rarely reported, limiting the benefits to credit scores.
If your goal is to improve your personal credit score, consider using a regular credit card or personal loans, which can also be used for business purposes and help build personal credit.
Tip from the expert: On the other hand, business credit cards can help build business credit. To ensure your business card is contributing to your business credit score, verify that your card issuer reports payment history to business credit bureaus.
Alternatives to secured business credit cards
If a secured business credit card isn’t the right fit for you, there are several alternatives to consider, each with unique benefits. A business line of credit offers flexibility similar to a credit card, allowing you to borrow up to a set limit and only pay interest on the amount you use. This is a great option for managing unpredictable cash flow or covering short-term expenses. Interest rates are often lower than those on secured credit cards, and the line can be reused after repayment.
Another option is a small business loan, which provides a lump sum of money for a specific purpose, such as purchasing equipment or expanding your business. These loans typically have fixed interest rates and repayment terms, making them more predictable than credit cards. Small business loans are ideal for larger expenses or when you need more significant funding.
Finally, personal loans for business can be a viable alternative, particularly for new businesses or those with limited credit history. While these loans are based on your personal credit, they can offer lower interest rates than secured cards. However, it’s important to be cautious, as using personal loans ties your business finances to your personal credit, increasing the risk if your business faces financial difficulties.
These alternatives can provide more flexibility and, in some cases, lower costs than a secured business credit card, depending on your business needs and financial situation.
Free resources:
- Top-rated personal loans for fair credit
- Credit cards (for low-good credit score) – require no security deposit
- Review Credible personal loans for business
- Best private lenders for business loans
Things to Know
One of the most significant downsides to secured business credit cards is the initial deposit. The amount can be quite large depending on the borrower’s desired credit limit, and not everyone has a chunk of cash sitting in their bank account. That said, secured cards might be one of the only ways a business owner can gain access to credit, and banks often approve the accounts on the spot. So, while the upfront deposit can be painful, it’s often a good investment for borrowers with blemishes on their credit report.
Because they help build credit, secured cards can open the door to other financial opportunities for the business owner. Many suppliers extend lines of credit to owners, but that privilege can be limited or unavailable for borrowers with poor credit. In some cases, shaky credit can impact insurance premiums, as insurers view bad credit as a risk factor.
Related Articles:
- Best Credit Cards With No Security Deposit
- Best Personal Loans For Fair Credit
- Best Debt Consolidation
Can I Get a Business Secured Credit Card?
Business secured credit cards are generally easy to qualify for, there are requirements beyond the deposit. Banks may require that the borrower have a business checking or savings account, and there may be limits on services like balance transfers. You’ll also need to be comfortable paying any fees and in some cases, a higher interest rate than you would with a traditional card.
Are Business Secured Credit Cards Worth It?
Secured business credit cards can be well worth the upfront investment for owners needing to boost their credit. They are often the only way for those people to get a credit card, which is more than a good enough reason to make the security deposit. Finally, the extended benefits of building credit, such as gaining access to a line of credit from a supplier or debt consolidation loans, adding tremendous value for the cardholder.
Who are Business Secured Credit Cards Best For?
Business secured credit cards are best for new owners or those needing to repair their credit. Banks report the borrower’s payment history, which can boost their credit score and open the door to other credit opportunities.
