For many companies, business credit cards are an essential tool for managing business expenses. They can help your business build business credit and the line of credit offered on these cards can be helpful when cash flow is tight.
Unfortunately, bad credit or no credit may make it difficult to be approved for a small business credit card account. That’s true whether your business is a startup or well-established, and it’s because a personal credit check is part of the credit card application process, and a good or excellent personal FICO score is often required. If you don’t qualify for a traditional business credit card, and you’re looking to establish or rebuild your credit, then a secured business card can represent a viable option.
Here, we’ll introduce you to secured business credit cards and how they work and examine when you may want one. Then, we’ll help you determine which card is best for your needs.
What Is a Secured Business Credit Card?
A secured credit card is one that requires the cardholder to place a refundable security deposit with the credit card issuer. With many secured cards, the amount of your credit line will be equal to your deposit, at least in the beginning. And in most cases, the issuer will require you to link your bank checking or savings account so the deposit can be deducted directly from your account, but a few issuers will allow you to send those funds to them after you’ve been approved.
But just like a regular credit card, you can use a secured credit card to make purchases. Those purchases are not deducted from your deposit, though. You’ll get monthly statements and you’ll need to make monthly payments. If you don’t pay the balance in full each month, you’ll be charged interest, usually at a fairly high variable APR.
And as with any other credit card, with a secured card your payment history may be reported to credit bureaus. Small business secured cards may be reported to commercial credit bureaus and help you build business credit. (Personal secured cards can help build personal credit.) Most business credit cards don’t appear on personal credit reports unless you default, but the issuer does have the option of reporting payment history for business cards to consumer credit bureaus.
After a year or so of on-time payments, many secured card users find that they are able to be approved for a standard, unsecured card.
Unlike standard, unsecured cards, you don’t need good credit to qualify for a secured card. In fact, secured credit cards are often designed for people who have poor credit or who have very little credit history. While they often check personal credit, these issuers are much more flexible in terms of the creditworthiness they require from cardholders.
For many small business owners, these cards can be the best business credit cards for bad credit.
While tying up a deposit for a credit card may not be ideal, it may be worth it. A secured business card can be a valuable tool to potentially build and improve your credit. The security deposit assures lenders that, despite your lack of good credit, there will be funds available to pay the debt back if your business cannot.
How a Secured Business Credit Card Works
For the most part, a secured business credit card works like any unsecured credit card for consumers, with the exception that it may help build business credit, not just personal credit.
Like any other credit card, you may be able to access balance transfers to pay off other cards or debt, and you may be able to get a credit card cash advance. (Be careful: these advances tend to have a higher APR or other fees). And just like any other credit card, you’ll receive a monthly statement and you’ll be required to make regular payments before the due date. The security deposit is only used if you default on your account.
If you pay your monthly bill on time and keep your balance low, then you can build credit over time. This will help you qualify for an unsecured credit card. Keep in mind, though, that a small credit line means that it’s easy to hurt your credit scores with high “debt utilization” or “debt usage.” If the balance reported to the credit reporting agencies is close to your credit limits, then your credit scores may be negatively impacted. To be safe, try to keep your balances below 20% of your credit limit.
Pros and Cons of a Secured Business Credit Card
Just like with any financing product, there are both positive and negative aspects to consider with a secured business credit card.
- Great for building or rebuilding personal and/or business credit
- Paying on-time can open the door to unsecured business credit card
- Bad credit won’t likely prevent you from qualifying.
- Interest rates typically are high
- Credit limits are often low/tied to deposit amount
- Easy to max out due to low credit limit
How to Choose the Right Secured Credit Card for Your Business
Just as with any other credit card, to find the right secured credit card for your business, you should examine the card’s benefits, fees and rewards, if any. When selecting a secured business card, take a look at both the minimum and maximum security deposits offered. This should be an amount you can afford, but still large enough that you can make needed purchases.
You should also look at the interest rate and fees offered. Some secured cards have no annual fee, while others have relatively small fees. Finally, if the card offers perks such as cash back rewards, that can be a plus.
Best Secured Business Credit Cards
There are not many issuers offering secured business credit cards, so your choices will be much more limited than if you were searching for an unsecured business credit card. Still, the best place to start in determining what type of business financing is best for you is to access your personal and business credit scores to see what you qualify for. Using Nav, you can view personal and business credit scores, and see which credit cards or business loans for small business you may be eligible for.
Bank of America Business Advantage Unlimited Cash Rewards Mastercard Secured credit card
This secured business credit card from Bank of America requires a minimum deposit of $1000 to open. There is no annual fee, and it has a surprisingly robust rewards program for a secured card. You can earn unlimited 1.5% cash back on eligible purchases with no cap. You can redeem cash rewards as a credit card statement or as a deposit into your Bank of America bank account—checking or savings.
There is no annual fee, but there is a foreign transaction fee of 3%.
Bank of America will automatically review the cardholder’s credit history, and customers who pay on time and meet other qualifications may be able to transition to an unsecured card. Bank of America business credit cards generally report to SBFE.
*All information about the Bank of America Business Advantage Unlimited Cash Rewards Mastercard Secured credit card has been collected independently by Nav. This card is not currently available through Nav. To see what business credit cards are available, please visit the Nav Credit Card Marketplace.
Business Edition® Secured Mastercard® Credit Card
First National Bank offers a business secured card with a credit limit between $2,000 and $100,000, in multiples of $50. Your security deposit must be 110% of the credit limit that you want, however you will earn interest on the deposit. There are no rewards points or miles to earn, but there are perks such as Mastercard Easy Savings (automatic rebates on certain purchases) and discounts on Quickbooks Online or TurboTax. There is an annual fee of $39.
*All information about the Business Edition® Secured Mastercard® Credit Card has been collected independently by Nav. This card is not currently available through Nav. To see what business credit cards are available, please visit the Nav Credit Card Marketplace.
Union Bank® Business Secured Visa® Credit Card
Union Bank has offered a secured card for small business owners with a limit of as little as $500 and as much as $25,000 in the past. However, this card is not currently open to new applications.
*All information about the Union Bank® Business Secured Visa® Credit Card credit card has been collected independently by Nav. This card is not currently available through Nav. To see what business credit cards are available, please visit the Nav Credit Card Marketplace.
Wells Fargo Business Secured Credit Card
You may see references online to this credit card, as it was a popular option for business secured cards. However, as of October 2022 it was no longer available.
Personal Secured Credit Cards
If you’re having trouble qualifying for a business credit card due to your credit scores, you may want to consider getting a secured personal credit card. A personal secured card can help you to build your credit history and improve your credit score, as long as you make payments on time and keep debt low.
Here are some personal secured credit card offers to consider:
Discover It Secured Credit Card
This personal secured card from Discover carries no annual fee. The minimum deposit is $200 and your credit limit will equal that deposit. After 7 months, Discover will begin reviewing your account to see if you are eligible to convert to an unsecured credit card and get your deposit back.
*All information about the Discover It Secured Credit Card has been collected independently by Nav. This card is not currently available through Nav. To see what business credit cards are available, please visit the Nav Credit Card Marketplace.
Platinum Secured Credit Card from Capital One
This personal credit card from Capital One features a refundable minimum security deposit of $49, $99 or $200. There’s no annual fee for this card and Capital One will automatically start reviewing your account after 6 months to see if you qualify for an unsecured card. There is no annual fee and the card carries a purchase rate of 25.74% variable APR.
*All information about the Platinum Secured Credit Card from Capital One has been collected independently by Nav. This card is not currently available through Nav. To see what business credit cards are available, please visit the Nav Credit Card Marketplace.
Self offers a unique way to build credit through a Credit Builder loan, which can then be used to obtain a secured card. There is no hard credit check. Pay a $9 administrative fee then choose a monthly amount to save, starting at $25. Pay that amount for a specified period of time (24 months, for example). Your payments will be reported each month to credit bureaus. Once your Credit Builder loan is paid off, you unlock the money you’ve saved in a CD (minus interest).
Self also offers the Self Visa Credit Card. Start with a credit builder loan and make at least three monthly payments on time with at least $100 saved toward your savings goal. If your account is in good standing you choose your credit limit (secured by your savings progress). This card can also help you build personal credit.
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