With a cash deposit, a secured business credit card can help you build your credit and grow your company.
Growing your business can be difficult without consistent funding for everyday expenses. When your credit score is less than stellar, getting a business credit card can seem impossible. That’s where secured cards come in.
A secured business credit card works just like any other credit card, but to open the card, you must put down a security deposit of cash. The amount you deposit will determine your line of available credit. Typically, the more money you put down upfront, the higher the line of credit you’ll get with your card — usually 90% to 100% of the deposit amount.
Compare secured business credit cards
How does a secured business credit card work?
A business owner will put down a cash deposit to open their secured business credit card. Some cards require that you actually put down more cash than the initial line of credit. Once you’ve made your monthly payments on time, your line of credit can be increased incrementally — usually after 12 months or so.
Eventually, your credit card company could transition you from a secured to an unsecured card, depending on if you raise your credit score and prove you can handle making on-time payments each month.
How is a secured credit card different from an unsecured credit card?
The upfront cash deposit is the only real difference between an unsecured and secured credit card. Although you can’t use the cash deposit after you open the card, you can get it back after you close it.
A secured credit card is a great option for a new business owner who can’t qualify for a traditional unsecured card, would like access to a higher line of credit or who needs some time to build up their credit score.
Why does a secured card require a deposit?
Secured credit cards issuers use the cash deposit to protection against missed payments. They’re most commonly used by individuals who don’t have the necessary credit score to open an unsecured card. The cash deposit acts as a “security” for the credit card company to show that you mean business to operate your business. Some cards also allow your deposit to earn interest in a holding account.
Why do you need a credit card for your business?
Using a credit card for your business has many benefits. A credit card used only for business expenses makes it easier to separate your personal expenses from business. It can make accounting and expense tracking more simple and clean. You could also reap rewards for spending, such as earning points or cashback.
Some business cards also offer better benefits specific to business owners, like WiFi when traveling or extra cash back on office supplies.
Additionally, depending on your line of credit, you could make larger purchases upfront to get your business running. Use your credit as a revolving operating loan during business launch or lean times.
Top secured business credit cards
OpenSky® Secured Visa® Credit Card. Offered by Capital Bank, with no monthly or opening fees. An annual fee of $35 with a minimum required deposit of $200. This card reports to all three major credit bureaus, so it helps you build your credit if you pay on time.
Wells Fargo Secured Credit Card. New customers can get their annual fee waived. Offers a credit line of $300 to $25,000, and you can get up to 10 cards for employees, but there’s a $25 annual fee per card. This card is unique because it offers $1 cash back or points as a reward system, and it reports to all the credit bureaus.
Secured Mastercard® from Capital One®. If you need a card and are low on funds, this requires as little as $49 minimum security deposit. With no monthly, annual or start-up fees you’ll save even more money. However, it does have a high APR of 24.99%, so try to pay your balance each month and watch out for late payments. This card reports to all three credit bureaus as well, so you’ll build credit if you use it responsibly.
What kind of fees does a secured business card have?
- Security deposit. Consider what you want your credit limit to be and make sure you have that much available to open the card.
- Annual fee. Some cards will waive that fee for the first year.
- Per-card annual fees. You could pay an annual fee for each additional card.
- Late payment, over-limit and returned-payment fees. Any of these fees could trigger a penalty interest rate, so check to see what your card’s rules are.
- Foreign transaction fees. You may be charged a percentage or fee for using the card outside of the US.
Pros and cons of secured business credit cards
- Multiple users. Many cards allow you to add several authorized users to the card for business expenses and purchases.
- No annual fee. Some cards waive the annual fee for secured cards.
- Helps you build credit. Many secured credit cards report activity to the business credit bureau.
- Rewards.Some secured credit cards offer cashback rewards on certain purchases.
- Security deposit to access credit. In some cases, the cash deposit needs to be higher than the initial line of credit.
- Per-card annual fees. More users mean more fees.
- Slim pickings. There aren’t as many companies that offer secured business cards compared to unsecured ones.
- High variable interest rates. Secured business cards typically come with higher variable interest rates, usually starting at 12.9%.
How to choose a secured business credit card
There aren’t as many options for secured business credit cards as there are for unsecured business credit cards, but you can still try to narrow down the best card for you by looking at:
- Required deposit.And what your line of credit will be.
- Upfront costs or fees.These will take away from your available line of credit.
- How the company determines credit line increases.How many months do you have to wait before you can apply for an increase?
- The annual fee.And if it will be waived for the first year.
- How many users will be using the card.If you plan on multiple users, a card that charges a fee per card may not be the best fit for you.
- Rewards and benefits.Can you get travel rewards or discounts on buying particular items for your business?
Can I use a personal credit card for my business?Yes, you can. In fact, if you’re concerned that business credit card issuers will try to pull a fast one on you by unexpectedly changing rates or charging an excess amount of fees, you’ll find more protection by going with a personal credit card. This is thanks to the Credit CARD Act of 2009, which mandated that personal credit card issuers follow fair and transparent practices so that customers aren’t taken advantage of.
What’s the difference between a personal credit card and a business credit card?
A business credit card, unfortunately, doesn’t offer as much protection as a personal credit card. While the Credit CARD Act of 2009 forced issuers to crack down on deceptive practices on personal credit cards, it didn’t require business card issuers to establish those same fair and transparent policies. This means that there are typically differences in what business credit cards can charge for late fees, how quickly they can change their rates and their interest rates.
How does a business card affect your personal credit?
If you have a business and a business credit card, you’ll also have a separate business credit score. So, your personal and business credit should stay separate. Although, if your business were to default on any debts, you would personally be held responsible for payment. After all, someone has to be responsible to pay up.
When applying for a business credit card, if you’re the business owner, be aware that anything that happens to your business credit score could affect your personal credit score as well.
How does a business card affect your business credit?
If the credit card company reports your credit activity to a the three credit bureaus — Experian, Equifax and TransUnion, it could help build your business credit.
Not all secured business credit cards report to the three credit bureaus, and some only report to commercial bureaus. And some cards only report negative activity. While a secured business card can help you take the next step towards an unsecured card, some may not be the best option for building maximum credit.
If building your business credit is a top priority for you, be sure to ask about credit reporting before you open the card.
How to apply for a secured business credit card
To apply for a secured credit card for your business, you will need to do the following:
1. Apply online or at your bank. You will most likely need to fill out a personal guarantee for the card, even though it is a business card, making you responsible for the card’s balance. This means you might need to use your Social Security number along with your company’s tax ID.
2. Bring financial documents.
- Mailing address for your company
- An authorized representative
- A financial reference
- Your banking information
3. Submit corporate W9 info.Sign a substitute for your company’s W9 or submit your W9 paperwork.
How to avoid hurting your credit
Don’t go crazy with your limit. If you get upgraded to a larger line of credit — should you start spending away? Be careful. Spending all of your available credit could impact your credit utilization ratio. This is your amount of credit you’re using divided by your total available credit. For a secured credit card, you should aim to keep the ratio below 20%. Basically, credit card companies like to know that you’re being a responsible spender.
Make those payments. If you can’t pay the full balance, always pay at least the minimum needed to avoid fees. And if you’re in an absolute bind, never discount the power of picking up the phone and talking to someone about your situation. Avoid any hits to your credit score while using a secured card.
Keep things professional. Link your card to your business checking account, and only put business expenses on the card without sneaking anything else on there. It won’t pay off in the long run.
After you get your secured business card, focus on making your monthly payments on time and in full to prove to the credit card bureaus that you are a reliable customer. Keep your credit stable in other ways; this is not the time to take out a giant business loan or apply for a mortgage, for example.
As you continue to use your secured business credit card, the issuer might do periodic reviews to see if you are eligible for an upgrade to an unsecured credit card account. You can also call the company and request a credit account review as well.
A secured business credit card may not be your first choice, but it’s a good option if you’re unable to open an unsecured card, want to build up credit or have a low credit score.
There are some rewards available, but typically the benefits are not as good as an unsecured business card. If a secured business card is your only option, it’s a good step in the right direction while your business and your credit grows.