Secured business credit cards may be a good option for firms with poor or no credit history. To get an idea of the benefits and risks involved, read through the upcoming paragraphs.
A number of expenses have to be borne by a business, regardless of its operational status. Costs can be classified as fixed or variable. Again, they may be explicit or implicit. Thus, every business needs money for its day-to-day operations. In addition to working capital, a business needs cheap credit to buy equipment, to pay for business trips, and in general, track business expenses. Typically, a business needs many credit cards for ensuring smooth operations. For firms with good credit history, unsecured business credit cards are a feasible option. Lenders would be more than willing to provide cheap credit to well-established businesses. Such firms will benefit in the form of low APR, in addition to high credit limits.
Secured Business Credit Card
A secured business credit card is useful for a firm that does not have a credit history. A start-up may require a secured business credit card, since the lender may be unwilling to provide a line of credit due to the absence of a well-established credit history. A firm with a bad credit history will also find it hard to obtain an unsecured business credit card. Filing for bankruptcy or a history of credit card debts will definitely disqualify a firm from obtaining cheap and easy credit. For such firms, credit cards secured by the assets of the business may be the only option. Sometimes, credit cards may be secured by a savings deposit. The application fees and interest rates for secured credit cards are higher than those for unsecured cards. Generally, more than one business credit card is issued at a time. In case the initial amount of deposit is insufficient to cover the cost of issuing other cards, a business will be expected to deposit additional money usually in increments of $100. A cashier’s check would be the ideal way of funding the deposit for unsecured credit cards, since they are processed faster than business or personal checks.
The hassle of obtaining secured business credit cards is compensated by the numerous benefits offered. For instance, an employer is entitled to individual billing for all credit cards. In other words, he receives detailed spending reports, and is thus able to keep track of the amount of money spent on various transactions. This is especially useful in case of business trips undertaken by employees. In case flight tickets are booked using the credit card, travel insurance can be availed. Rental car insurance and insurance against theft and damage may also be available. Moreover, a business may be able to obtain warranty for an extended period of time by using the secured business credit card to purchase the equipment. Enrolling with a business credit bureau can help the business establish its credit history, and this may help the firm obtain unsecured business credit cards in future.
A high rate of interest may make it difficult for a small business to make regular monthly payments. This may result in damaging its credit history. Moreover, a small firm may find it increasingly difficult to ensure management checks to prevent the misuse of the credit cards by employees. Since the credit card is secured, it makes the owner of the business personally liable for all expenses.
Business credit cards are a must for every business. Although unsecured cards are the best for firms, secured cards may eventually pave the way for unsecured credit cards for firms with poor or no credit history.