Do Businesses Need a Secured Business Credit Card?

A secured business credit card can be helpful, but you can operate your company just fine without one. In fact, many entrepreneurs with small or home-based businesses don't use any credit card at all for business. Instead, they rely on cash and and their personal debit cards as they make purchases or payments. That might not be suitable for your business, depending on its structure. For example, some businesses are formed as limited liability companies, which are designed to keep personal and business assets and liabilities separate.

  1. Uses

    • Unsecured business credit cards can be helpful in tracking expenses, paying vendors and merchants, and more. The cards generally feature a grace period before finance charges begin, and this helps businesses manage their cash flow. That could be very important for business-to-business companies that must often wait two or three months to be paid for their invoices.

    Collateral

    • A secured business credit card is guaranteed by collateral, usually cash in a bank account. Other forms of collateral may also be pledged, at the bank's discretion. The bank may accept vacant land as collateral or assets of the business, such as office furniture and equipment. Generally, the value of the collateral must match or exceed the credit limit on the secured business credit card.

    Unsecured Cards

    • Unsecured business credit cards don't require the same collateral as secured cards. However, banks may require the owner of the company to pledge personal responsibility for the card. That means if the business fails, the owner becomes liable for the debt.

    Credit Rating

    • A secured business credit card makes sense if your business has a poor credit rating or has not established a credit rating. Having two or three secured business credit cards could be helpful under that scenario. Positive payment accounts and low balances help a business credit rating grow. Some small-business owners with poor personal credit also consider secured business cards as they start their companies. The required collateral for a business credit card removes the risk for the lender, making approval less difficult no matter what the credit rating is for the owner or the business.

    Applying

    • Secured business credit cards are available from most banks. You can apply in person, over the telephone or online at the bank's website. In-person applications may be best for a business owner trying to build a banking relationship in the local community. Meeting a banker and being approved for a business credit card could lead to larger loans in the future.

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