Secured business credit cards can help businesses build credit, but they may require a personal guarantee and come with high fees and interest rates. Prepaid and secure cards are other options, but businesses should read the fine print and aim to eventually obtain credit without a personal guarantee.
Getting a secured business credit card can be the first step toward building credit for many developing businesses. There are several ways in which the term guaranteed can be understood. It can mean that someone or some entity has stepped in to guarantee the amount of money borrowed on the card, or it can mean that the card is prepaid and subject to prepaid account limits. Alternatively, some people indicate that the card itself is guaranteed to be approved.
Often times, the secured business credit card is one where the business and the business owner are responsible for paying back. In other words, the business owner when applying for a card uses their personal credit information to secure the refund. If the business becomes insolvent, responsibility for repaying the card bill passes entirely to the business owner and the borrowed money is treated as personal debt. This is a challenge for many business owners because one of the reasons people create a separate legal entity called a business is that they won’t be liable for certain debts if the business fails.
Offering this type of guarantee is often not of much help to the business, and eventually a business has to get its own credit that does not require an owner guarantee. On the other hand, getting such a secured corporate bank card is not difficult. A business owner will simply add information about his social security number and income on the application, and this will be verified against the business tax identification number. Providing the owner credit score is good, such cards are generally approved.
Another type of secured business credit card is the prepaid card. This will allow people to put money on the card so they can use it like a credit card for various business transactions. Alternatively, some companies have a secure card. Money at the card limit is placed in an account and is not touched by the company, and the company can borrow up to the limit, make regular payments, but ensure that this happens to the company, that the guaranteed amount and bank can be used to pay off debt. There are many companies that offer both of these types of cards and both are easy to find on the internet.
Finally, there are types of cards that are guaranteed approval cards. These can also be found on the internet and may seem attractive to a business with poor or poor credit history. It’s important for people to read the fine print on these cards and note that the amount of credit they can get is usually up to a certain amount. Due to the fact that lenders can take higher risks by guaranteeing a card issuance, companies can expect these cards to come with higher interest rates and fees. It may be better to start with another form of secured business credit card, as the fees may be lower.
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