Business owners usually have no difficulty achieving unsecured credit lines with suppliers. But, while many vendors and suppliers allow Net 30 terms to their customers, unsecured credit cards can be difficult for some business owners, especially those who have poor personal credit. For these business owners, a secured corporate credit card may be just the ticket.
A secured credit card uses money you place in a security deposit account as collateral, such as a certificate of deposit or savings account at your bank. Your credit line will generally depend upon your income, your ability to pay against your purchases, and the amount of your collateral deposit.
A secured credit card is not like a prepaid card. Your purchases are not paid out of your original deposit as they would be with a prepaid card. Your collateral deposit is just that, collateral being held as security in case you don't keep up with your payments. It provides the bank or underwriter confidence that you will make responsible payments.
Secured credit cards have long been used to help build stronger personal credit for those who have poor or no credit history. The business side of this strategy can help small business owners strengthen their business credit the same way, by proving responsible payment habits with major banks and lending sources who report automatically to D&B or the other business credit bureaus.
In business, secured credit cards work just like a traditional credit card. You can use it for everyday business expenses and purchases, as well as for other transactions, such as reserving a hotel room or renting a car. Since payments report to the commercial bureaus just like they would on a normal credit card, they are also beneficial for those who can’t get a small business loan due to a lack of credit history. Every payment made on-time provides a necessary boost to scores and ratings.
Secured cards are usually easy to qualify for, and some offer rewards, liability protection, overdraft protection, and the option of having multiple employee cards attached to the account.
Depending on the provider, your prompt payment habits can often result in the card being switched to an unsecured card after 6-12 months of on-time payments. In this case, your deposit will be returned, the secured account closed, and then a new unsecured account opened.
While business owners can use good personal