Secured business credit cards

Important Information About Secured Business Credit Cards

The current US credit crunch is affecting not only private consumers but many businesses as well. People who are not business owners often don't realize how much businesses rely on credit in order to keep operating.

Now, as credit becomes increasingly difficult to obtain, some banks and lending institutions are offering secured corporate credit cards in much the same way as secured and prepaid credit cards are becming more common amongst private consumers. The secured credit card allows a business to have a line of credit while the bank or other lender has at least some guarantee that their interests will be protected as well.

How do secured business credit cards work?

What are their advantages and disadvantages?

Credit cards are actually lines of credit or the ability to borrow a certain amount of money every single month while paying back only a portion of it. Like other credit cards and indeed most forms of credit, secured cards come with a credit limit and interest charges and other fees.

So what do we mean by secured?

When someone needs to have a certain amount of that money up front before they can receive a credit card, that's called a secured credit card. Usually, a business needs to deposit a certain amount of money with the bank or lender to get a secured card.

The amont of money required varies, and is usually a percentage of the credit limit. Some typical percentages are 50%, 100% and 200%.

Let's suppose someone applies for a $10,000 line of credit. They may need to deposit half, all, or even twice this amount in the bank first, and maintain that account there as long as they have the credit card active. Every month they can spend up to $10,000 on their credit card and still must pay at least the minimal amount due every month. The "security" money they have deposited is NOT used to pay the balance every month. It is there as security to protect the lender's interests.

Sometimes secured corporate credit cards, there may not need to be a cash deposit. Instead the bank may accept some other form of equity. For example, the bank might hold a lien on the business property or certain equipment of the business. Or the business may be required to hold some type of account with the bank, such as retirement accounts or investments.

Why Secured Business Credit Cards?

Secured cards are often particularly advantageous for new businesses that need credit in order to open their business and keep themselves afloat for those first few difficult months or years.

A secured card will still have a Visa or Mastercard logo so nobody else knows it is a secyred as opposed to a regular business credit card.

Of course, the disadvantage of these secured business credit cards is that it can be very difficult to come up with the cash for your security deposit. This can be especially true for businesses that are often having a hard enough time meeting their regular payroll and other obligations. And is very stressful having a lien on your property and knowing some assets of your business may be seized if you fall behind on your payments.

However, for new business or a business with damaged credit, a secured card can be a real lifeline. And just as for individuals. it is possible to improve the credit rating over time to the point where security is no longer required. For a business person trying to rebuild their credit and their business it may be just the break they need.

Why do some lenders require more than 100% of the credit limit as security?

Usually the lender only moves to take the security deposit when the business creditor is seriously behind with payments, for example by 150 to 180 days. This means that for 5-6 months the business's outstanding balance could be accruing compounding interest as well as late fees or other penalties. Therefore the lender may claim to be owed more than the amount of the original credit limit.

It is essential to understand all the terms and conditions before taking out a secured corporate card. Also, if the goal is build a positive credit history, make sure the lender reports regulalry to all three credit agencies.

Want to know more? See this article on Secured Corporate Credit Cards, and here is a MUST READ from the Federal Trade Commission - an FTC Consumer Fact Sheet on Secured Credit Card Marketing Scams.

Need a secured card now? Apply here for the latest deals: Secured Credit Cards

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