A credit card is a very important tool for a business to have, but some business owners worry about credit card spending getting out of control or the business has credit issues. In these cases, a secured business credit card might be a good choice.
How does a secured business credit card work?
What sets a secured credit card apart from a more typical credit card is that the cardholder places a security deposit down on the card and this deposit determines the card’s credit limit. This feature makes a secured business credit card the best choice for a business owner that does not want to take the risk of getting into severe debt.
If the business cannot make a necessary payment, the amount due will be taken from their security deposit. This aspect of the secured business credit card prevents the cardholder from defaulting and negatively affecting their credit.
What are the benefits of a secured business credit card?
One of the advantages of a secured credit card that businesses in particular enjoy is that it streamlines their business spending. By having all of their authorized employees use one business credit card, the company does not have to worry about excess paper work since all of the spending is track on one credit card statement.
Having all of the spending on one statement can also help a business track just how their money is being spent. By knowing exactly where and how much money is being spent, the company can analyze if their money is being spent properly and what changes need to be made if it is not.
A secured business credit card might even be able to make the business money. When the cardholder puts the security deposit down to secure the card, that money is placed in a special account. Some card providers put this money in a money market saving account, which will earn high interest over time. Some providers put this money in a Certificate of Deposit that earns even more interest than a money market savings account.
If the business owner decides to cancel the card, the deposit will be returned to them and if it has been in one of these high interest accounts, they might get back more money than they put in. It is important for the business owner to know exactly what type of account their deposit is being put into. Some of these accounts, like the Certificate of Deposit, have a minimum amount of time that the account has to be active. If the cardholder tries to get their deposit back before this minimum time is met, they will be charged an early withdraw fee.
What are the drawbacks of a secured business credit card?
The main drawback to a secured business credit card is that the minimum deposit needed to open the account tends to be a lot and many businesses do not have that kind of capital freely available. If a business has large amounts of debt, they should focus on paying that down before trying to get a new credit card.
These types of credit cards also tend to have very high interest rates. That makes it very important for the business to make their monthly payments on time and to pay their balance in full whenever possible to avoid large interest charges. As with any other credit card, it is also important that the cardholder fully understand their policy so they are not surprised by any hidden fees.
Are there other credit cards that would benefit a business?
Another type of credit card that could greatly benefit a business, especially a small business, is a cash back credit card. These cards are great for businesses because with every qualified purchase that is made the cardholder earns some of that cash back, almost like a refund.
These refunds are given by either being posted directly to the credit card account or the money is sent by check to the business. Businesses in particular find these types of card beneficial because they are able to take that money and reinvest it into the business.
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