What is a Secured Business Credit Card?
A secured business credit card requires a cash security deposit. This deposit acts as collateral for the lender. If a secured card user fails to pay, the lender can use the deposit to cover the debt. This reduces risk for lenders, making it easier for businesses to get credit.
Using a secured business credit card responsibly can improve a company’s business credit score. Timely payments and low credit utilization show lenders that a business is reliable. Over time, this responsible use can lead to better offers, including unsecured business credit cards with higher limits and lower interest rates.
Understanding the terms and conditions before applying is crucial. Each secured card has different fees, interest rates, and benefits. Some secured credit cards may offer rewards like cash back or travel points. Others might not have these perks but could have lower fees.
Business owners should also check if the secured card reports to major credit bureaus. Reporting helps build a business’s credit history, which is essential for future financing needs.
How do Secured Business Credit Cards work?
Secured business credit cards function by requiring an upfront cash deposit. This deposit acts as collateral and usually becomes your credit limit. For example, if you deposit $500, your credit line will be $500. This is different from unsecured cards, where no deposit is needed.
Once you make the security deposit and activate the card, you can use it like any other small business credit card. You can make essential business purchases, cover unexpected expenses, and allow employees to use the card. Some credit card issuers also allow cash advances, although they usually come at a higher cost in terms of fees and interest rates.
Business credit cards, like personal credit cards, operate on a revolving basis. Revolving credit on business credit cards allows business owners to carry a balance from month to month, paying at least the minimum payment due. Interest is charged on the remaining balance if not paid in full. The interest rate varies depending on the card issuer and can add up quickly if the balance is not paid off promptly.
Paying off the balance each month prevents accruing excessive interest. It also helps keep credit utilization low, which can help improve credit. If you cannot pay the entire balance, paying more than the minimum amount due each month is recommended.
Business owners should also be aware of potential fees on business credit cards. Some cards carry annual fees or foreign transaction fees. As mentioned, most credit cards have a cash advance fee. In addition, business credit cards have late payment fees. Making all payments on time is essential to avoid increasing costs through fees and damaging your credit with late payment reports.
Businesses that close their credit cards and pay off any remaining balance get the security deposit returned to them. Some credit card companies might convert the business credit card account to an unsecured business credit card once you have built enough credit history, also resulting in the security deposit being returned. If you close the account with a remaining balance or default on the card, the credit card company collects the security deposit to cover any remaining debt.
How do Secured Business Credit Cards differ from Small Business Credit Cards?
The main distinction lies in the requirement of a security deposit versus the reliance on credit history. Most business and consumer credit cards are unsecured. There are additional differences because secured business credit cards are intended for those with bad credit or no credit history, and unsecured credit cards depend on good to excellent credit.
Interest Rates
Interest rates can vary between secured and unsecured options. Secured cards usually have higher rates because they cater to those with less established credit. Small business credit cards may offer lower rates but depend on the applicant’s credit history.
Fees
Fees also differ. Many secured business credit cards charge an annual fee. Some may have monthly fees or transaction fees as well. Unsecured cards might have fewer fees but could include late payment penalties or foreign transaction fees.
Rewards
Rewards programs are another key difference. Most secured credit cards do not offer rewards. They focus on helping businesses build a positive business credit history. In contrast, many small business credit cards provide cash back or travel rewards, benefiting regular users.
What are the Best Secured Business Credit Cards?
Here’s our list of the top secured business credit cards to consider.
The Bank of America Business Advantage Unlimited Cash Rewards Mastercard Secured Credit Card
- Minimum Security Deposit: $1,000
- Interest Rates: 28.49% variable APR.
- Balance transfer fee: 4%
- Annual fee: None
The Bank of America Business Advantage Unlimited Cash Rewards Mastercard Secured Credit Card allows businesses to build credit while earning cash rewards. It includes features like cash flow management tools, travel and emergency services, free access to business credit scores, and online management with mobile access.
Cardholders can earn unlimited 1.5% cash back on all purchases, providing a valuable incentive for businesses to use this card for their expenses. Startups, small businesses, or those with limited credit history could benefit from this card. By using this card responsibly and making on-time payments, businesses can improve their credit scores and earn cash rewards on their everyday purchases.
Businesses can apply online or visit a Bank of America branch to obtain the Bank of America Business Advantage Unlimited Cash Rewards Mastercard Secured Credit Card. The application process typically involves providing information about the business, such as its tax identification number and annual revenue.
First National Bank of Omaha Business Edition Secured Mastercard
- Minimum Security Deposit: $2,000.
- Interest Rates: 25.99% APR based on the Prime Rate.
- Balance transfer fee: N/A.
- Annual fee: $39
The First National Bank of Omaha Business Edition Secured Mastercard offers credit limits from $2,000 to $100,000, depending on the security deposit provided. The security deposit required is typically equal to the credit limit desired, ensuring responsible use of the card.
Customers can earn interest on their security deposit, adding to the value of this card. Other features include cash flow management, mobile receipt tracking, automatic rebates from over 40,000 participating merchants, global services, fraud protection, and more.
Businesses can apply online or visit a local branch to obtain the First National Bank of Omaha Business Edition Secured Mastercard. This card is ideal for small businesses, startups, or those with limited credit history looking to establish a solid financial foundation. By using this secured credit card responsibly, companies can improve their credit score and access better financing options in the future.
Valley Visa Secured Business Credit Card
- Minimum Security Deposit: $500 – the deposit must be 110% of the desired credit limit, up to $25k.
- Interest Rates: 0% Introductory APR for first 6 months, then 16.20% to 27.75%.
- Balance transfer fee: 4%.
- Annual fee: None
The Valley Visa Secured Business Credit Card is an excellent option for businesses looking to establish or rebuild their credit. This card offers credit limits ranging from $500 to $25,000, depending on the security deposit the business provides.
The secured credit card features 1% unlimited cashback, no annual fee, fraud protection, and online access. Businesses that could benefit from the Valley Visa Secured Business Credit Card include startups, small businesses with limited credit history, or businesses looking to improve their credit score. Note that the card has a 2% foreign transaction fee.
Businesses can apply online or at a local branch to obtain the Valley Visa Secured Business Credit Card. The application process typically requires basic business information, financial documents, and a security deposit. Once approved, businesses can use the card to make purchases and build their credit history.
What are the benefits of Secured Business Credit Cards?
Secured business credit cards provide several benefits for business owners. They help those with credit-challenged backgrounds gain access to financing products. This is important for entrepreneurs struggling to qualify for traditional credit cards or business loans.
Building or repairing a positive business credit history is another crucial advantage. Making regular payments on a secured card can improve credit scores over time, opening doors to better financing options in the future.
Businesses can also manage their business expenses more effectively with these cards. Secured business credit cards may offer rewards or perks. These can include cash back on purchases or travel points. Even though these cards require a deposit, they still provide opportunities for businesses to earn while spending.
What are the drawbacks of Secured Business Credit Cards?
Secured business credit cards have several drawbacks. One major issue is the required security deposit. This deposit can tie up a significant amount of cash. Providing this collateral can limit available funds for other expenses.
The credit limit on these cards often matches the size of the security deposit. This means that businesses have limited purchasing power. For example, if a business deposits $1,000, its credit limit will also be $1,000. This restriction can make it hard to cover larger purchases or unexpected expenses.
Fees can also be a concern with secured business credit cards. Some cards charge annual or transaction fees, which can add up and affect overall profitability.
There are also risks associated with using any business credit card. Mismanagement can lead to debt accumulation, and missing payments can damage personal finances and business credit scores.
Secured Business Credit Cards Pros & Cons
Pros:
- Helps build or improve business credit history.
- Can be easier to qualify for compared to unsecured cards.
- Provides access to business financing.
- Can provide a way to separate personal and business expenses.
Cons:
- Requires a security deposit to open the account.
- Typically comes with higher interest rates and fees.
- May have lower rewards or benefits compared to unsecured cards.
- The security deposit is tied up until the account is closed or upgraded to an unsecured card.
How can I get a Secured Business Credit Card?
Here are the crucial steps for getting a secured business credit card.
Research Options
Start by exploring different secured business credit cards. Many banks and financial institutions offer these cards. Look for cards that fit your needs. Check their fees, interest rates, and rewards programs.
Check Requirements
Each card has specific requirements. Review what is needed for approval. Most lenders will look at your business credit history. Some may require a personal guarantee. Understanding these requirements helps in the application process.
Gather Documents
Prepare the necessary documents before applying. Standard documents include your business license, tax ID, business bank account statements, and financial statements. Lenders want to see your business’s financial health. Having these ready speeds up the application.
Apply Online
Visit the lender’s website to apply. Fill out the application form with accurate information. Provide details about your business and personal finances, including your business credit journey, if applicable.
Fund Your Account
After approval, you need to deposit funds, which become your credit limit. The amount varies by lender but usually starts around $500-$2,000. This step is crucial to accessing your secured card.
Use Responsibly
Once you receive your card, use it wisely. Make timely payments to build your credit history. Regular use can improve your business credit score over time.
Frequently Asked Questions
Here are the most common questions about secured business credit cards.
Can I get a Secured Credit Card in my Business Name?
Yes, small businesses can obtain a secured credit card in their business name. Sole proprietors can also apply for these cards. They may need to provide personal information since their business and personal finances are often linked. The issuer will review the application based on the business’s financial health and the owner’s credit history.
How do I build or repair credit with a Secured Business Credit Card?
Secured business credit cards can help establish, build, or repair credit. The credit issuers typically report your payment history to credit bureaus. This means timely payments can improve your credit score over time.
To build business credit, use the card regularly and keep your balance low compared to your credit limit. This shows lenders that you manage money wisely.
Responsible Management
Responsible credit management is key. Here are some actions to consider:
- Pay your bills on time every month.
- Keep your credit utilization below 30%.
- Monitor your account for any errors.
- Review your credit report regularly.
These steps can help create a positive credit history.
What are the credit limits for Secured Business Credit Cards?
Secured business card credit limits often match the amount of the security deposit made by the cardholder. For example, if a business owner deposits $500, their credit limit is usually $500.
Different credit card issuers set various secured card credit limits. Some may offer higher limits based on the deposit amount, while others might have lower caps regardless of the deposit size. It’s essential to check with each issuer for their specific policies.
What happens to the Security Deposit on a Secured Business Credit Card?
Various outcomes affect what happens to the security deposit. Keep in mind that some financial institutions may charge fees related to the processing the return of the deposit. Other options allow the deposit to accrue interest, which could increase the amount returned.
Closing an Account Paid In Full: If you pay off the outstanding balance and close the account, the credit card issuer returns the security deposit to you.
Upgrade to an Unsecured Business Credit Card: If you’ve successfully built or improved your business credit history, the credit card company may offer to upgrade the account to an unsecured credit card. This can unlock higher limits, lower rates, and better rewards. The financial institution returns the security deposit to you minus any applicable fees.
Closed the Account with a Remaining Balance: If you close the account with a remaining balance, the credit card company will use the security deposit to pay off the balance and process closing it out. This typically involves fees as well. The card issuer returns the difference if the remaining balance and applicable fees are less than the deposit amount. If the amount exceeds the security deposit, the business owner may be responsible for the difference if it involves a personal guarantee.
Default or Charge-Offs: The credit card terms and conditions typically state how many days late an account can go before becoming a charge-off, typically 90 or 120 days. Failure to make adequate payment in that time frame results in a default, which can have serious consequences. A default usually results in losing all or most of the security deposit. Additional fees and penalties may apply. Defaults can significantly damage personal and business credit scores.
Can I get rewards with a Secured Business Credit Card?
Rewards vary by card. Some secured cards may provide cashback on specific categories like office supplies or travel. Others may offer points that can be redeemed for merchandise or travel. For example, a card might give 1% cashback on all purchases. This means if you spend $1,000, you earn $10 back.
However, not all secured cards offer rewards. It’s essential to check the terms before applying. Look for cards that clearly outline their reward structure. This way, you can choose one that fits your spending habits.
What are the alternatives to a Secured Business Credit Card?
Small business owners may have several alternatives to secured business credit cards, depending on your goals and needs.
Business Credit-Building Options
There are several other options for establishing or building business credit.
Tradelines: Several business vendors and suppliers offer trade credit, which is typically more accessible than other financing products. Most supplier credit options offer net-30 terms, meaning you have 30 days to pay off the invoice. Using and paying off trade credit is one of the most stable ways to build business credit.
Credit-Builder Loans: Business credit-builder loans act like loans in reverse. The creditor deposits the loan funds in a savings account or certificate of deposit. The business makes regular payments plus interest to build credit history. At the end of the term, the creditor releases the loan funds.
Debt Consolidation Loans: Small businesses already struggling with credit card or other revolving credit debt may consider a debt consolidation loan. These loans combine multiple debts into a single loan with one monthly payment, typically at a lower interest rate. This can help simplify debt repayment and save money on interest payments over time.
Business Financing Options (Small Business Loans)
Small business loans are a form of financing specifically designed to help small businesses meet their financial needs. These loans can be used for various purposes, such as starting a new business, expanding an existing one, purchasing equipment, or covering operational expenses. Small business loans typically have specific terms and interest rates based on the lender and the borrower’s creditworthiness.
You may be interested in one of the following small business loans:
- Business line of credit.
- Business loans for women.
- Business term loans.
- Equipment financing.
- Invoice factoring.
- Merchant cash advance.
- Revenue-based loan.
- SBA loans.
- Working capital loans.
- ERTC advance.
Bad Credit Business Loans
Credit-challenged small business owners may also consider bad credit business loans. These loans offer access to funding for businesses that may not qualify for traditional loans and the opportunity to improve credit scores over time with responsible repayment.
However, drawbacks may include higher interest rates, stricter repayment terms, and potentially limited loan amounts compared to loans for borrowers with good credit. It’s essential for business owners to carefully weigh the pros and cons before pursuing a bad credit business loan.
How Secured Business Credit Cards Work – Final Thoughts
Secured business credit cards can be a valuable tool for building credit and managing expenses for small businesses. By providing a line of credit backed by a security deposit, these cards offer a way for businesses to establish creditworthiness.
It’s essential to use these cards responsibly and make timely payments to avoid damaging your credit. Overall, secured business credit cards can be a stepping stone to unsecured credit options in the future.
Contact us if you have more questions about building business credit or to apply for a small business loan. Our alternative funding experts can help you find the best financing options for your credit profile.
