Secured Business Credit Card

An application for a secured business credit card is almost always completed for one of two reasons: to establish a credit history where none exists or to rebuild the company's creditworthiness due to a poor record of meeting obligations or a bankruptcy. The application will request such basic information as the company name and address, length of time in business, and the name of the actual applicant, for example the sole proprietor or the business partners. Financial information will also be requested before the application is approved. Company owners should shop around before submitting an application. Issuing banks offer a variety of products and the owners will want to find a secured business credit card with a low annual fee combined with an acceptable interest rate. Some banks may offer additional services with their cards, such as enrollment in some type of reward program, protection against unauthorized use and/or theft, extended warranties on some products purchased with the card, or rental car or some other type of travel insurance. By shopping around and comparing the different fees, programs, protections, and bank policies, the owners can get the best possible card for their company.

One drawback of a secured business credit card is that cash is tied up in a savings account with the issuing bank. Remember that the purpose of having a secured account is to either establish or rebuild a reputation for financial stability. Because creditworthiness has not been proven or needs to be improved, the issuing bank requires a deposit in a savings account equal to the card's credit limit. This money, which is often referred to as a security deposit, is what secures the purchases made on the account. If the company owner fails to make the monthly payments as required by the secured business credit card agreement, the issuing bank can access the funds in the savings account to pay off the debt. The money in the savings account, which may range anywhere from a few hundred to thousands of dollars, cannot be withdrawn by the owner without completely paying off and closing the credit card account. The money in savings is not used to pay the monthly bill. By paying the monthly bill on time every month, the company owner is building a positive financial record for meeting obligations. The monthly payments help to establish and rebuild creditworthiness. It's important for a business owner to have a reputation for honesty and reliability so, as Scripture says: "That ye may walk honestly toward them that are without, and that ye may have lack of nothing" (1 Thessalonians 4:12). Tying up money in a security deposit can be a drawback, though, because the cash cannot be used for running the company. This may not matter much if the security deposit amounts to only a few hundred dollars. But when $5,000 is tied up in a security deposit and isn't available when the business needs to buy new equipment, then the lack of cash flow may present a difficult challenge for the company owners. The priority remains, though, to establish and/or rebuild creditworthiness.

In addition to the above benefits of rewards, protections, and insurance, a secured business credit card may offer other beneficial services to companies. For example, one security deposit can serve as the collateral for more than one card. Though there is only one account, the issuing bank can provide cards for several employees. This can be a real benefit for employees who travel frequently or to separate the expenses of different departments within the business. Issuing banks often provide a breakdown of expenses by categories which can be very helpful when reconciling receipts and purchase orders with billing statements. The banks may also provide a year-end summary of all categorized expenses which may be a valuable tool when preparing annual financial reports. Another helpful benefit is that credit limits usually can be increased by depositing additional funds in the security deposit account. However, this decision needs to be weighed against the drawback mentioned earlier about tying up the company's cash flow. A third benefit is privacy. Nothing on the issuing bank's secured business credit card designates it as such. Company owners and employees do not need to be embarrassed about using the card. No merchant will know by looking at that piece of plastic that the company is in the process of establishing or rebuilding its creditworthiness. For a more professional image, though, the company may be able to get a piece of plastic that has the company name on the front. This is a new feature in the design of credit cards that many businesses, both new and old, will want to take advantage of as another way of standing out from the crowd.

Establishing a new business's creditworthiness doesn't necessarily mean tying up cash in a security deposit and getting a secured business credit card. Entrepreneurs with good personal credit should seek other alternatives first. For example, the entrepreneur's personal financial institution may have a type of starter account for new businesses. Another option is to apply for an unsecured card based on one's personal financial information. Entrepreneurs with an acceptable FICO score will almost always qualify for an unsecured card. One thing the entrepreneur will not want to do is to use personal cards for business expenses. For income tax purposes, the expenses of the business should be kept separate from the expenses of the household. An unsecured account will almost always have a lower annual fee, or perhaps none at all, and a lower interest rate than a secured business credit card. They will also offer most if not more benefits and protection to their customers.

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