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A new business enterprise may benefit from a secured business credit card as a way to establish their credit profile. Many times newer companies lack a credit history that is long enough to meet a credit card issuer’s minimum requirements. A secured business credit card is a way to obtain a credit card and create a positive credit history. This helps the business move from a secured to an unsecured card at some point in the future.
There are some basics you should be aware of when applying for and obtaining a secured business credit card. These basics will help you find the card that is right for your business and does not create any additional expense or problems for you to manage.
Determine Asset to Be Used as Security
A secured credit card differs from an unsecured card because of the collateral requirement. To receive an unsecured card some asset will need to be pledged to back up the credit limit. The issuer to protect them from credit default risk, which is the risk that the card balances will not be paid off, establishes this.
The most common form of collateral that is used is cash. However, being a new business, cash flow is a concern and cash may not be the appropriate collateral. Other forms of collateral that may be considered includes shares of stock in the business, equipment or real estate owned by the company, including land and buildings. You should check with the card issuer to determine their acceptable forms and work with an issuer with the greatest flexibility.
Know How Much Credit Is Necessary
Before considering an offer, you should know how much credit is needed for the business. You may have a need for credit to cover short-term financing needs of the business such as accounts receivables or temporary cash flow floats (i.e. payroll or accounts payables). The amount that you apply for will need to be matched by a sufficient amount of collateral.
Compare Various Credit Card Offers
Once you have established the amount of credit needed for the operation of the business, you should compare at least three different offers. This comparison will give you a chance to stack up terms and conditions of the offers and whether or not you are getting the best possible deal.
Know Your Options and Terms
Whichever offer you choose, be sure that you understand and know well the terms of the offer. You will want to know if the secured business credit card offers certain benefits such as reward points for travel or cash back offers. It may also be important to know the terms of the annual percentage rate or APR, which includes the stated interest rate and any fees and charges. Knowing whether the APR is the offer rate or an introductory rate will affect your costs down the road.
Finally, it may be good to find a card that converts to an unsecured business credit card after a period. Some cards may provide a period, usually 1 or 2 years, for the applicant to get their credit established. After that period, if you were diligent in paying your bills on time, you may be allowed to change the card to a secured card with a higher credit limit. If you are able to obtain this type of offer, it will free up any pledged collateral for other business purposes.
Secured Business Credit Card Basics For Your Business
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