It’s obviously exhausting to run a business, but what’s even more exhausting is when you need money only to discover that your credit ratings don’t qualify you for several opportunities. You may have heard that a secured credit card is a smart alternative for building or rebuilding credit. However, you’d need something a little different as a business owner; a secured business credit card. Here, we’ll explain what a credit card is, when you might need one, and how to choose the best one for your circumstances. Plus, we will also look at some of the best-secured business credit cards, according to reviews. Examples include Wells Fargo Secured Business Credit Card, OpenSky Secured Business Credit Card, Discover It Secured Business Credit Card, and so on.
A secured credit card will help you build a solid payment history and demonstrate to lenders that you are a good credit risk, allowing you to qualify for better rates and terms on future small business loans and lines of credit.
What Is a Secured Business Credit Card?
Generally, secured credit cards are created for persons with poor credit or no credit history at all. The card issuer is protected by a refundable deposit in the event of default, plus responsible use of the card can help the user establish and build credit. Business credit cards are intended for use in the business world.
For most firms, credit cards are a necessary part of their operations. They can assist you in improving your credit scores and history, as well as obtaining the assets you require to run your organization effectively. Unfortunately, having terrible credit or no credit might make getting a credit card difficult. If you don’t qualify for a standard company credit card and need to create or rebuild your credit, a secured business card is always the best option.
So, what exactly is a secured business credit card? Simply put, it is one that necessitates a deposit upfront. Basically, most issuers will require you to link your checking bank or savings account so that the deposit can be debited directly, but a few will allow you to transfer the cash to them after you get approval.
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While paying a deposit for a credit card may not seem ideal, a secured business card can be a useful tool for building and improving your credit. The security deposit assures lenders that you will be able to repay them despite your poor credit. Plus, you can get a refund of your security deposit if you handle the card rightly (pay the bills).
Furthermore, when cash isn’t an option, you can use a secured credit card to make purchases or handle payments, just like a regular credit card.
If your payment history is reported to the major credit agencies and your account is in good standing (no late payments) over time, one of these cards may be able to assist you improve your credit scores and establish a credit history.
How a Secured Business Credit Card Works
A secured business credit card functions similarly to an unsecured credit card in several ways. But there is an exception; it could be a tool to help develop business credit rather than personal credit.
You may be charged an annual fee for your card, so keep that in mind each year. You may also be able to use balance transfers to pay off other cards or debt, and you may be able to acquire a cash advance at ATMs, just as with any other credit card. (Be aware that these advances usually come with a higher APR or other costs attached.)
Furthermore, as we’ve mentioned severally already, you can establish credit over time by paying your monthly bills early enough and keeping your balances low, which would also help you qualify for an unsecured credit card. Keep in mind, though, that with a limited credit line, it’s easy to damage your credit ratings by having a high “utilization” or “debt usage.” To put it another way, if the sum reported to credit reporting agencies is close to your credit limits, your credit scores may suffer. To be safe, keep your credit card balances below 20% of your credit limit.
The Benefits and Drawbacks of a Secured Business Credit Card
A secured business credit card, like any other financing option, has both positive and adverse factors to consider.
Pros
Some prominent advantages of using a secured business credit card like Wells Fargo, OpenSky, Discover It, and so on include;
- The fact that they are excellent for establishing or repairing personal or corporate credit.
- On-time payments can lead to an unsecured company credit card.
- You will be able to qualify even if you have bad credit.
Cons
The following are some disadvantages of using a secured business credit card like Wells Fargo, OpenSky, Discover It, and so on include;
- The interest rate could be very high.
- Initially, the credit limit will be modest.
- Due to the low limit, it may be simple to max out the card.
Secured company credit card requirements are frequently extremely liberal. A personal credit check may be performed, although most issuers do not require good credit to apply. You’ll need to make a deposit with the issuer, which they usually make simple by letting you link your bank account.
How Much Money Will I Need for a Security Deposit?
The amount of the security deposit will differ depending on the lender. The majority of issuers require at least $300—500, but a few have lower limits. If that’s just not a possibility, you could look into some of the other possibilities for establishing business credit that is discussed later in this article.
Your credit limit will typically be equal to or a percentage higher (or lower) than the minimum cash deposit, indicating that the credit card issuer is reducing its total risk by securing funds ahead of time. If you apply for a card with a $500 credit limit and you’re granted, you will often be required to pay a $500 or close to $500 security deposit.
Meanwhile, it’s important to understand that this is not a prepaid credit card with a balance that can be used to make transactions. Instead, your deposit will be kept apart from your other funds, and you will be expected to make payments without relying on the money you put upfront.
What Happens to My Secured Business Credit Card Deposit?
As previously said, your money is kept separately (typically in an FDIC-insured bank account), and you will receive it back if you keep your end of the agreement; much like a deposit for rental equipment. Making frequent payments on your account and finally reaching a zero balance is the bargain in this scenario.
When you get your deposit back differs from one credit card issuer to the next, but in any case, your account must remain in good standing for a certain amount of time. Keeping that in mind, the following are the most likely instances in which a secured credit card lender will return your deposit.
In certain scenarios, when you elect to close the account, the deposit may be repaid. Of course, it’s not as straightforward as simply declaring, “I’m done; let’s shut this down.” At the time of closing, your account must be in good standing and have a $0 balance. Close your account and get your deposit refunded according to the directions provided by most business credit card companies.
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The alternative and arguably more desirable scenario is that you successfully lower your perceived risk by establishing a track record of timely payments and manageable amounts. In this instance, the lender may opt to change your secured credit card account to an unsecured credit card account and refund your deposit without forcing you to close the account. (Alternatively, the issuer may adjust your deposit limit without requiring you to increase your deposit.) This may not happen automatically, so keep an eye on your credit score and ask your lender if you can switch your card to an unsecured business credit card if it climbs.
For the most part, one or more of the major credit agencies may check your personal and/or company credit reports, and the lender may make decisions based on what they find.
What Are the Risks of Using a Secured Business Credit Card?
Though the application and approval processes are slightly different, a secured credit card functions similarly to a standard credit card in terms of fees, APRs, and credit reporting.
Annual fees are common on secured credit cards, and while rates vary considerably from lender to lender, the annual percentage rate (APR) can be extremely high. If the introductory APR is low, check the tiny print to ensure you understand what happens when the introductory period ends. Missing a payment or failing to pay in full might put you in a risky and costly situation.
Similarly, if you merely pay the minimum payment, interest charges might make paying off your debt harder. You’ll almost certainly be charged a late fee if your cash flow is limited and you neglect to make a payment. If things get out of hand and you can’t pay your bills, you may default and have your account placed in collections. Of course, because your late payments will be recorded to all credit bureaus, this will further harm your credit score. A personal guarantee is required for most small business credit cards, which means the lender may pursue you personally for payment.
As a result, it’s pretty vital that you be truthful about your ability to repay your loans. If you’re truly short on cash, it’s best to keep the overall sum low and pay it off by the due date. Keep an eye on your credit limit and how close you are to exceeding it, and make adjustments to your company expenditures as you should.
Do Secured Business Cards Aid in the Development of Business Credit?
It’s pretty difficult to figure out how business credit cards report to the major credit bureaus. Reporting varies by issuer, and establishing commercial credit differs from establishing personal credit.
Chase business cards, for example, record positive activity to a number of business credit bureaus, including Dun & Bradstreet and Equifax Business, but not to consumer credit bureaus. Negative activity, on the other hand, will be reported to consumer credit bureaus.
On the other hand, personal credit reports are not the same as credit reports for businesses. Your business may have a credit report with one or more business credit bureaus if you have a business card. However, not all business credit cards report to credit bureaus for businesses.
Several business credit cards show just bad information on your personal credit reports. Your personal credit reports may not indicate regular account activity. In such instances, the card will not assist you in establishing personal credit. However, if you miss a payment on your business card, the negative mark would almost certainly appear on your personal credit reports.
Best Secured Credit Cards for Your Business
Because there are fewer issuers who offer secured business credit cards than unsecured business credit cards, your options will be more limited than if you were looking for an unsecured business credit card. Still, accessing your free personal and business credit scores to see what you qualify for is the best place to start in evaluating what form of business finance is appropriate for you.
A handful of the credit card providers that offer secured business credit cards includes the following;
#1. Wells Fargo Secured Business Credit Card
Wells Fargo offers a secured business credit card with no annual fee and a cashback incentive of 1.5 percent on every dollar spent. If you meet the requirements, you may be eligible for a credit line ranging from $500 to $25,000, depending on your qualifications.
For the most part, the Wells Fargo Business Secured Card is a great option if you have bad credit because it has no annual fee and customizable rewards. Furthermore, if you choose points as a bonus, you’ll get 1,000 extra points each billing cycle if you spend at least $1,000. With a 15.15 percent annual percentage rate, this card has the lowest interest rate on the list (APR).
Also with online banking, you can keep track of your spending and payments, as well as set up recurring automatic payments to save time each month. Although this card does not report to the main credit agencies, by consistently making on-time payments, you may be able to qualify for an unsecured Wells Fargo credit card in the future.
#2. First National Bank Business Edition® Secured Visa® Card
A business secured card from First National Bank is available with a credit limit of $2,000 to $100,000 and a security deposit of 110 percent of your credit limit (on which you will earn interest). Although there is a $39.00 annual fee.
#3. Discover It Secured Business Credit Card: Best for Businesses on the Road
The Discover it Business Secured Credit Card may be an excellent choice if you’re a contractor, run a delivery service, or conduct your business from an RV. This is because of its 2% cashback benefits on gas station and restaurant purchases and 1% on all other eligible expenditures. Plus, with it Cashback Max, you’ll get an unlimited dollar match of all the cashback you earn at the end of your first year of card ownership. You may also set up fraud alerts using online banking or the mobile app, as well as freeze your card if it is lost or stolen.
Discover sends your credit history to the three major credit agencies and conducts automatic card evaluations after eight months to check if you qualify for an unsecured card.
#4. BBVA Compass Business Secured Credit Card
Basically, the first year’s annual charge on the BBVA secured business credit card is waived. To submit the security deposit of at least $500, you must open a Secured Credit Card Savings Account. Employee cards are also available for free.
But then, only Alabama, Florida, Texas, Arizona, Colorado, California, and New Mexico are eligible for this card.
#5. OpenSky Secured Business Visa Credit Card
Although the OpenSky Secured Visa Credit Card is not really a business credit card, it can be used for any business transaction. Your credit score isn’t used in the approval process because a credit check isn’t necessary when you apply.
OpenSky® reports to Equifax, Experian, and TransUnion, the three major credit agencies, so as long as you use the card and make on-time payments, your credit score and history will improve. Unlike most secured cards that need you to have a bank account to begin, OpenSky® makes it simple if you don’t have or qualify for one. Instead, you can make a deposit using a money order to get the application started.
Furthermore, with email alerts that remind you when your payment is due, OpenSky® helps you make on-time payments.
Secured Credit Cards for Individuals
If your credit scores prevent you from acquiring a business credit card, you might want to explore getting a personal secured credit card. A credit card that is paid on time over time can help you build and maintain good credit.
#1. Citi® Secured Mastercard®
This is a no-fee credit card that, when used sensibly, can help you develop credit. Unlike a debit card, it contributes to the development of your credit history by reporting to all three main credit bureaus on a monthly basis.
According to their website, you will have free online access to your FICO score once it is ready. It has a continuous APR and a yearly fee. There is also a security deposit required. A security deposit in the amount of your credit limit, between $200 and $2,500, is required if you are authorized.
#2. Capital One® Secured Mastercard®
The Secured Mastercard from Capital One comes with no annual charge and a $200 credit limit. It does, however, conduct automatic credit line reviews, and you may be eligible for a larger credit line in as little as six months.
Business Credit Cards for Fair Credit
There are unsecured business credit cards that you may qualify for if your credit is good but not great. To qualify for them, you usually need a FICO credit score of between 580 and 669. These fair credit business credit cards are designed for business owners who are attempting to build or rebuild their personal credit histories. You can begin with a lower credit limit, which you would increase as you demonstrate a track record of timely bill payment.
Credit Cards for Small Businesses
If you’ve just started a business, you probably don’t have any credit ratings or history. Even so, there are company credit cards for startups that you may be eligible for. If you have employees that need to make purchases for your startup, you might be able to get employee cards.
Credit Cards with Benefits for Businesses
The benefits that come with business rewards credit cards are appealing to many business owners. Eligible purchases can earn you membership awards, airline miles, gift cards, or statement credit; all of which can help you save money on your business costs. You may have a credit card that rewards you for qualifying in particular areas, such as gas or dining.
Keep in mind that some of these credit cards for small businesses have an annual charge.
Can I Get a Secured Credit Card With My EIN Number?
Yes, you can apply for a small-business credit card if you have an employer identification number (EIN), which is a nine-digit tax ID number granted to your business by the IRS. However, you will always be asked for your Social Security number.
Does Chase Offer a Secured Business Credit Card?
Chase does not offer a secured business credit card. However, they offer business banking services such as checking accounts, savings accounts, and unsecured business credit cards.
What Credit Score Is Needed for Wells Fargo Business Credit Card?
With the Wells Fargo Business Secured Credit Card, business owners with terrible personal credit (FICO score below 630) can build business credit while still earning benefits (cashback or points). In other words, with that FICO Score, you can obtain a credit card.
Is Business Credit Linked to Personal Credit?
Your personal credit and business credit aren’t linked, but they could be. Because business and personal credit contain distinct types of information, the ratings aren’t always associated. If you sign a personal guarantee while applying for a small business loan or a business credit card, this is very likely.
Who Qualifies for a Secured Credit Card?
Secured cards, on the other hand, are intended for people with little to no credit or with damaged credit. Credit card companies, like mortgage companies, auto loan companies, and student loan companies, analyze past credit history to determine eligibility and interest rates for their products.
Conclusion
All of these secured business credit cards have a simple application process and provide liability protection. If you’re uncertain, think about the different advantages each card has to offer and decide which ones are most essential to you, such as a rewards program or the ability to apply without a credit check.
You can develop your credit history and become eligible for an unsecured credit card with higher limits, more flexible payment dates, and better incentives if you consistently make on-time payments.
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