Finding the Best Secured Business Credit Card
Approximately two of three small businesses in the United States use credit cards. This practice is common as it helps with managing purchases on a monthly basis. Your card helps you be more accountable, particularly come tax time. Whether it’s a secured business credit card, unsecured or prepaid, it serves a real purpose.
How Secured Business Credit Cards Work
A secured business credit card is much like a personal one. You put up a collateral, which is the amount that you are able to borrow. You can typically increase this amount as your business scales. Down the road, some providers will even convert your card from secured to unsecured.
For small business owners, it is important to heavily compare your options. Secured business credit cards often come with annual fees. The APR rate can differ tremendously, but by putting security funds yours should stay low. Rewards are common, but are you getting cashback, points or statement credits? Further, what types of purchases qualify?
These factors all play into the affordability and value of the card that you choose.
Typical Fees for Secured Business Credit Cards
The fee structure will vary depending on the card. Take a look below at some examples you might incur and the likely cost of each.
- Annual fee: Most secured cards feature an annual fee between $25 and $50, but a $0 annual fee is commonplace for unsecured cards.
- Employee cards: Some business credit card providers charge you more for adding employee cards. This expense can run as high as the annual fee, per card.
- Foreign transaction fee: This is a must-avoid when selecting a card for a business owner or employee that frequently travels. The average fee is 1-3% of your purchase.
- Larger deposit: Many secured credit cards require more than 100% collateral. In most cases, this means depositing 10% more than your desired credit limit.
- Setup fee: While it’s mostly prepaid business cards that charge this, it exists in some secured cards too. The cost is typically 1-3% of your credit limit.
Perks with a Secured Business Credit Card
On the upside, most business secured credit cards offer a few valuable features. These selling points can make transacting through a credit card more valuable. Take a look below at some of the perks you might enjoy when using a secured business credit card.
- Cashback incentives: Most business credit cards provide cashback rewards in the amount of 1% of your purchases. Some will offer up to 5% for certain spending categories.
- Employee controls: Some credit card issuers give you the ability to remotely manage spending limits by employee card.
- Higher limits: Many small businesses cannot qualify for a significant borrowing limit with an unsecured card. Your limit can go as high as $100,000 (National Bank).
- Travel rewards: This incentive provides a kickback for any spending on airfare, car rental and hotel reservations. For business owners or employees that regularly travel, it’s invaluable.
How Employee Business Cards Work
Some providers allow you to have multiple employee cards at no additional cost. As an example, Wells Fargo charges $25 per card and allows up to 10 cards under each file. You could save $250 by choosing one that supplies these cards at no extra cost.
The problem is that most credit card issuers do not give you significant control over how these funds are divided. For instance, wells Fargo only asks what portion of the limit will go toward each card / employee. In this sense – pay cards or prepaid cards work better.
Control Employees with Prepaid Credit Cards
Do you require smarter control over employee spending?
Bento for Business and PEX Visa both serve as quality alternatives. These cards are “prepaid,” so you won’t get any credit-building boost. But, you can avoid assigning personal liability to your credit line this way. With a secured card – your personal credit report takes a hit if your payments ever run late.
Look at what the PEX Visa card offers – you can do stuff like:
- Choose a spending limit per card/employee,
- Restrict spending for certain purchase categories,
- Freeze an employee’s whenever you wish,
- Reallocate funds from one card to another,
- Let employees request extra funds,
- Run automatic top-ups for certain cards, and
- Permit over-limit purchases for a set period of time.
These spending controls are greater than what a traditional secured business credit card provider will offer you. The fees are a bit higher – $7.50 monthly per card, $49.95 to set up and a 1.5% foreign transaction fee. But, your monthly fee goes away for any calendar month where your business spends $50,000 or more.
Build Business Credit with Secured Cards
Some secured business credit cards are better than others. The best ones will help you build business credit. For this to be possible, the card issuer must report to one of the business credit bureaus. There are three that exist – Equifax, Experian and Dun & Bradstreet (D&B).
Your ideal secured credit card will report to D&B as they specialize in business credit and don’t handle personal reports. This way, you can establish and grow a credit file under your business and eventually qualify for financing without personal liability.
Just take the time to build your business’s credit up first. Then, you can start pursuing unsecured business credit cards or loans instead. You can always get your security funds back from your secured cards when that time comes.
Secured Business vs. Corporate Credit Card?
A secured business credit card is the primary solution for small businesses. However, corporate credit cards are another option. This choice is more common with well-established businesses due to the greater creditworthiness requirements. Your personal credit is not as much of a factor – instead, the issuer will look at your business’s credit profile.
The main difference here is who becomes liable for a missed payment or debt default. The secured corporate credit card will not tie to your personal credit report. Therefore, only the business’s file can assume the damage caused by bad borrowing behavior.
The corporate cards are specially designed for businesses with many employees. The cards compare to the prepaid cards mentioned earlier (PEX, Bento) when it comes to spending controls. Your employee cards will be much more centralized and controllable with a secured corporate credit card than with a small business card.
Secured Business Credit Card or Line of Credit?
Many people see secured business credit cards to be much of the same as secured lines of credit. This comparison makes sense in some ways, but there are differences that must be made clear.
Your business credit card is a revolving debt.
The line of credit is an installment debt.
The difference is that the credit card lets you continue to borrow up to the maximum amount. But, the line of credit needs to be paid in full before you can request more funds. Therefore, the secured business credit card is the only option for recurring purchases.
Another way to look at it is how this will affect your business’s credit. Typically, there is a greater influence on your credit score from revolving credit lines. For this reason, a secured business credit card will do more good than a secured business line of credit.
The Best Secured Business Credit Cards
As with any type of credit card, set a sum which hold superiority over others. These cards are typically offered directly from Mastercard or VISA. Take a look below at a list of some of the most popular secured business credit cards on the market today.
1. Wells Fargo Business Secured Credit Card
Wells Fargo provides a secured business credit card that is second to none. This card features a $25 annual fee. You can put between $500 and $25,000 in collateral. The best part is the low APR rate. Interest is fixed to Prime + 9.9% which makes for a 14.15% APR.
Now, here is where things get better. The Wells Fargo business secured MasterCard comes with plenty rewards. First off, you get 1% cashback on every dollar you spend. You also receive a reward point for each dollar spent. By transacting more than $1,000 in a calendar month, you get 1,000 points free.
Another plus – you can set up 10 separate employees each with a card of their own. These cards can be customized with designs of your choosing to be more personable to baby your brand. The cost is $25 per year for each card when you go with the Wells Fargo Business Secured Credit Card, but some alternatives are cheaper.
Furthermore, interest only applies after more than 21 days without paying for your transaction. You can really reduce the amount you pay on credit card interest by timing your purchases and payments.
Regarding the reward points, each one is worth approximately one cent. You will need to redeem at least $100 worth to receive this conversion rate. You can earn an unlimited amount which means spending $20,000 monthly would result in $2,400 in annual rewards. You can increase your redemption value by 10% by cashing out the points online.
They also pay 1.5% cashback immediately on your purchases. Your cashback on $20,000 in monthly spending would be $3,600 per year. This means you could receive more than $6,000 in incentives if you spend $20,000 per month with Wells Fargo’s business secured credit card.
2. BBVA Compass Secured Visa Business Credit Card
BBVA Compass offers a secured business credit card that’s a bit different than the rest. Your credit limit is 90% of the amount sitting in your savings account. The card has a $500 minimum deposit. The annual fee is $0 for the first year and $40 annually thereafter. The APR is Prime + 4.25% on purchases and balance transfers.
Being a BBVA Compass cardholder makes you eligible for the CompassPoints Rewards Program. You receive one point for every dollar you spend on eligible transactions. If you have more than one card through BBVA Compass, your points are multiplied. You can pick certain categories to earn 2-3x reward points. The options include: gas, groceries, healthcare, office supplies, travel and utilities.
The biggest perk with this business secured credit card is the ability to add employee cards at no additional cost. When compared to the Wells Fargo option above, you are effectively saving $250 per year when you have 10 employee cards under your account.
3. SimplyCash Card from American Express
SimplyCash is a top contender in the business secured credit card market. This card features no annual fee, 19.99% interest on purchases and 21.99% on cash advances. The card also comes with a $400 introductory cashback offer. You will receive a $200 credit for spending $5,000 in the first six months. You will receive a further $200 credit for spending $10,000 total within the first year.
Cardholders have eight categories to pick from when deciding what purchases will qualify for 3% cashback. Wireless phone and office supply purchases domestically in the U.S. will qualify for 5% cashback. These credits apply for up to $50,000 in purchases annually – beyond that amount, you will receive 1% on your purchases.
A small business could reclaim at least $1,500 in cashback on their first $50,000 in purchases. The main downfall is that your cashback only applies for the category you choose. The options include: gas, restaurant, media advertising, shipping, airfare, hotel rentals, car rentals and hardware, software and cloud computing purchases.
The companies that benefit most from this card are primarily tech-related. The last category (hardware, software and cloud computing) can rack up a hefty bill over the course of a year. If you wish to have multiple credit cards – simply use this card only for these types of purchases.
Secured business credit cards play a vital role for businesses with no established credit. These cards help manage spending between employees, keep financial records in order, manage out-of-country purchases and more. Your business needs to take the decision of which business card to use as seriously as possible. The difference between a quality and subpar card is literally thousands of dollars a year.