As an entrepreneur or small business owner, an excellent credit score is necessary to be approved for a business credit card. Yet you need a good credit score! So what do you do?
Secured business credit cards offer the ideal start for newer companies or those trying to establish or improve their credit. Although secured cards offer fewer features than their traditional counterparts, using one responsibly can help build solid business credit that could open doors to greater financing or even unsecured cards in the future.
What Is a Secured Business Credit Card?
A secured business credit card works similarly to regular cards, with one key difference: They require an initial refundable security deposit that acts as collateral and establishes your credit limit. Due to this feature, secured cards tend to make qualifying easier for applicants with lower credit ratings.
Your business credit can benefit immensely by responsibly using and paying off an everyday purchase card each month, paying the full balance each time, as this builds it quickly, potentially opening doors to higher limits or even unsecured cards in the future.
Difference Between Secured and Unsecured Business Credit Cards?
Selecting either secured or unsecured business credit cards depends on your current financial standing and objectives.
Secured business credit cards require an initial deposit, making the credit-building or rebuilding process accessible and reliable for new businesses and entrepreneurs with lower scores.
Unsecured business credit cards don’t require deposits and may offer greater perks compared to unsecured cards, such as higher limits, rewards programs, and lower interest rates. However, they’re typically reserved for companies with excellent to excellent credit standing.
Starting by opening a secured credit card could help build up your business credit to qualify for better financing solutions in the future. By taking advantage of all available tools to build a stronger financial foundation.
Also read: How to Choose the Right Credit Card Terminal for Your Business
Why a Secured Business Credit Card Can Be a Smart Move
When building or rebuilding business credit, one of the easiest and most effective tools available to you may be a secured business credit card. Here’s why it can help:
Easier Approval, Even with Low or No Credit
Getting approved for traditional business credit cards may prove challenging when starting from scratch or possessing less-than-stellar credit histories. Secured cards offer lower risk to lenders and make approval more attainable for new business owners or entrepreneurs with limited credit histories.
Build Your Business Credit Over Time
Secured business credit cards can serve double duty by simultaneously helping build credit profiles and qualifying you for better cards, loans, and funding opportunities in the future. By managing your card wisely, keeping balances low, and paying bills on time. A positive habit reported back to major bureaus will build your profile over time and help qualify you for additional funding sources or loans down the road.
Potential Drawbacks of a Secured Business Credit Card
While a secured business credit card can help you build credit, it’s not without a few trade-offs. Here are some limitations to consider before applying:
You’ll Need to Put Down a Security Deposit
One major drawback of secured cards is their upfront deposit requirements. Given that they require collateral, you’ll likely tie up money that could go toward managing business expenses instead. Starting or running a small business on a tight budget? This could strain working capital.
Limited Rewards and Perks
Secured business credit cards don’t usually offer as many rewards as their unsecured counterparts do, although you might still earn some basic cashback or points; travel benefits or statement credits typically aren’t applicable here. If earning rewards is top priority for you, upgrading to an unsecured card as soon as your credit improves might be wiser.
Tips for Applying for a Secured Business Credit Card
When applying for a secured business credit card, your goal should be to find one that both meets your budget needs and helps build strong business credit. Here are three simple tips to assist:
1. Choose a Card That Reports to Business Credit Bureaus
Not all secured cards provide you with the tools necessary for building business credit. Some only report to consumer bureaus. To maximize business growth and expand the financial profiles of your organization, choose a secured card that reports to major business credit bureaus like Dun & Bradstreet or Experian Business. This way, your responsible payment history increases its score!
2. Match Your Credit Limit to Your Business Needs
Your credit limit will depend on how much money is deposited with us; take care when reviewing monthly expenses to make sure this limit will cover essential business purchases. Aim to stay well below it so as to lower credit utilization levels, maintaining an optimal business credit score in turn.
3. Compare Deposit Fees and Costs
Every card issuer varies. Some secured cards require deposits as little as $200, while others might demand more, particularly if you want a higher credit limit. Be mindful to consider annual fees, setup charges, and maintenance expenses before selecting an ideal card to support your goals without incurring additional hidden costs.
Also read: What is Provisional Credit? A Complete Guide
Is a Secured Business Credit Card Right for You?
Are You Uncertain If a secured business credit card is the answer for your company? Consider these questions first
Are You Looking to Build or Rebuild Credit?
If your business is starting up or needs its credit history revamped, a secured card may prove an invaluable ally. Responsible use. Making timely payments as required by your card agreement will enable its profile to expand over time and open more funding avenues more readily in future years.
Have You Been Denied for an Unsecured Credit Card?
Are you being denied an unsecured card due to limited or poor credit? A secured card can be an ideal starting point. Qualifying for them may be easier, and their wise use could pave the way to transitioning over to unsecured credit over time.
Do You Want Credit Access With Less Risk?
Secured cards offer lenders less of a risk. This makes them a more feasible solution when your business requires access to credit without stringent approval standards, as is the case with unsecured cards.
If any of the above apply to you, a secured business credit card could be the right way for you to build credit and access better funding options in the future.
Ending Point
If you’re just starting or rebuilding your business credit, a secured business credit card could be the ideal first step toward building or rebuilding it. Allows access to credit while helping establish a strong business credit profile that could open doors to more flexible financing in the future. Although rewards and flexibility may be restricted compared to unsecured cards, long-term gains make the effort worthwhile.
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