Secured business credit card offers a revolving line of credit to businesses through a credit card that is backed with a cash deposit from the user which will be used as collateral. This helps the business with poor credit or thin credit profile to establish or rebuild credit they need to qualify for better business financing options later on.
Even secured business credit cards will check your personal credit score. Nav offers a free personal credit score check and 2 free business credit report summaries. Check yours for free here.
Free Guide To
Small Business Financing
How Secured Business Credit Cards Work
Businesses with poor or thin credit history that cannot qualify for business financing are a good fit for secured business credit cards. To obtain a secured business credit card, you need to put down a cash deposit in a “collateral account” to secure the credit card. Usually, your credit limit will be up to 90% of the security deposit.
Secured Business Credit Cards at a Glance
|Credit Limit||Up to 90% of security cash deposit|
|Average APR||Between 9.99% to 13.99%|
|Usage||For any kind of business-related purchases|
A secured business credit card may be used for purchases of supplies, inventory, fuel, and almost anything that you need for your business -- unlike fuel cards and fleet cards which are used for fuel and vehicle-related transactions only.
A secured business credit card is not a business loan - it provides the business a revolving line of credit in exchange for security deposit. In return, the business will be able to build a better credit report which will help them secure a regular business financing in the future. It is a temporary exercise that helps you prove your creditworthiness.
With this, it is very important that you manage your financials properly and choose your security deposit amount carefully. If you want to increase your credit line, you will need to add more funds to your security deposit, and this may require a second credit check. If you would withdraw funds from the account, it will be treated as a cash advance and may be subject to a higher interest rate.
A secured business credit card will hold your cash deposit in case of default. In case of default, your cash deposit may be used to repay the money that you owe. However, your security deposit will eventually be refunded to you if you decide to close your secured business credit card account, or if you are qualified to upgrade it into an unsecured business credit card.
When Do Businesses Need Secured Business Credit Cards
A secured business credit card is an essential tool for businesses who have poor or limited credit history. Because secured business credit cards report credit history to the three main credit reporting agencies - Equifax, TransUnion, and Experian - they help the company and business owners build credit.
Your business may need secured business credit cards if:
- You need a revolving line of credit but cannot get approved for SBA lines of credit
- You have poor or thin credit profile and need to establish or rebuild one
- You are looking for convenient payment options for your business-related purchases but cannot get approved for an unsecured business credit card
- Your business has positive and healthy cash flow that can pay for the credit card bills on time
Secured Business Credit Card Qualifications
Bad or thin credit profile does not necessarily affect your application for secured business credit cards. In order to qualify, you need to provide the following:
- Secured deposit of typically $500 minimum
- Some credit card providers will pull your personal or business credit history
- Your SSN or EIN number (if your business has one)
- Other personal or business information needed by the providers
Secured Business Credit Card Costs
Just like an ordinary business credit card, the common payment cycle for secured business credit cards is monthly. This means that you have 30 days to settle your balance. The costs associated with a secured business credit card usually include APR, annual fees, and foreign transaction fees, if any.
This is the cost of borrowing money from the credit card. Though it is wise to pay off your credit card balance in full every month, sometimes your cash flow just could not afford it. With this, you need to find a credit card that has a low APR. Usually, APRs are based on prime rate.
This means that it can change based on the current market conditions. The current standard APR ranges from 9.99% to 13.99% on purchases, and it can go as high as 29.99% for cash advances. The APRs can vary from one card issuer to another.
2. Annual Fee
Secured business credit cards typically carry an annual fee between $20 to $49. Although there are some secured credit cards that don’t charge annual fees, they won’t help you establish a credit history either.
Other issuers also charge fees for the rewards program. This can go up to $50 to $60 annually. This is good for businesses that intend to use their cards regularly because they can usually enjoy rewards of between 0.5% to 1% cash rebate, which can offset the fees.
3. Foreign Transaction Fee
Some secured business credit cards carry foreign transaction fee when you use the card in another country. There are some secured credit card issuers that do not charge a foreign transaction fee, making them a better choice especially if you usually travel abroad.
If you have poor credit record or limited credit history, but you have available funds to put up a security deposit, a secured business credit card may be a good option. It is important to find an issuer that offers the lowest APR and fees. If you think a secured business credit card is not what you are looking for, consider other bad credit business loan alternatives.
If your credit score is above 600, you may qualify for regular business loans and unsecured business credit cards. Check your credit score for free through Nav.
Maximum Loan Amount
Typical Loan Term
Typical Interest Rates
9.99% - 13.99%
7 - 10 business days
Have a question?
When you use this credit card responsibly, it can help you improve your credit score.
It can help you your personal and business purchases separate.
It can help you learn positive credit habits.
It can help you establish better credit profile which can help you.
You are required to put down a cash deposit as collateral. This is a drawback especially if your company is struggling to put up funds to run the business in the first place.
If you don’t use it wisely and responsibly, it can damage your credit rating.
It tends to come with higher fees and interest rates.
Finding funding for a small business can be daunting. A Google search for “small business loan” brings up 180 million results! In part, this is because the last few years have seen a surge in business financing options. Nonetheless, some approaches stand the test of time. Here are 3 lessons you can learn from how […] Read More