Why You Should Get a Secured Business Credit Card

Business Card

So you’re transforming your big idea into a small business! Checking items off your to-do list and buying supplies means spending up front. Whoever coined the phrase “It takes money to make money” wasn’t joking.

That’s why you might want to consider a secured business credit card. It’s a great way to build — or rebuild — your credit while driving your small business forward.

What is a Secured Business Credit Card?

Does a secured credit card build credit? And how does a secured credit card work? Well, it functions like any other credit card you’d swipe, tap, or insert … except it’s typically backed by a cash deposit that you, the cardholder, put down as collateral.

Think of it like putting down a security deposit when you sign an apartment lease. You prepay for a month’s rent, for instance, and the money stays in reserve, just in case. The same goes with a secured card for business.

You might be thinking, “If I’m required to put money down ahead of time on a secured company credit card, doesn’t that defeat the purpose of getting a credit card in the first place? Why not just use a debit card?”

Debit cards are fine! They can help you make purchases in a responsible way. However, using a debit card typically doesn’t affect your credit rating.

How a Secured Credit Card Helps Your Business

As your business grows, you may need cash up front to hire new employees, purchase or lease work space, or invest in tools or equipment. Securing a loan could help you achieve your goals — and they may be easier to reach if you have a strong credit rating through a secured business credit line.

If you’re interested in learning how the loan process works, read our guide on how to get a small business loan. We’ve compiled our best tips to help get your small business started or keep it running successfully.

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The Benefits of a Secured Card for Your Business

If you’re still wondering, “Should I get a secured business credit card?” consider other potential benefits:

1. Improved business credit score.

Like personal credit cards, certain secured business credit cards send your account data directly to all three credit bureaus. Reporting policies can vary among card issuers, so if you’re looking to repair or improve your credit rating, it’s a good idea to look for a card that offers this type of credit reporting.

2. More flexible credit limits.

Some secured credit card providers offer a secured business credit line with no maximum limits (although we don’t recommend maxing out). It’s worth shopping around for the best secured business card offers, so take your time and compare multiple options.

3. Rewards and perks.

Although it’s not as common as it is with regular credit cards, certain secured credit cards offer similar perks, such as cash back.

Just think: If your card offers cash back, you could use it to offset other standard operating business expenses, and there’s usually no shortage of those.

5. A path to regular credit cards.

For some, the ultimate goal of using a secured business credit card is improving your credit rating so you can transition to a regular credit card. Basically, it’s one small but important step in taking before making a bigger leap.

6. Refundable deposits.

Let’s say you’re ready to switch to an unsecured credit card or decide to close your secured credit card. If you’ve paid off your balance, your security deposit will be refunded. If you default, you’d only lose the amount you deposited at the start, assuming you don’t owe more than your deposit.

How to Use a Secured Business Credit Card

If you want to maximize the benefits of your secured credit card, here are some tips worth considering:

1. Put down a security deposit you can afford.

There’s no reason to go into debt when opening a secured credit card. That defeats the purpose of establishing or building a good credit score. Instead, look for a card that you can afford. Even as low as $200 down can be enough to begin the process of establishing good credit.

2. Use it for business expenses only.

Technically, you can use your secured company credit card for any type of purchase — business or personal. However, since the point is to practice good habits and show your creditworthiness, try using it for business expenses only.

3. Use it wisely to build credit.

A big part of your credit score is determined by “credit utilization,” or the amount of the available credit you’re using. Words of wisdom to consider:

  • Pay off the card in full so you’re not charged interest
  • Consider using the card at least once per month so your account shows regular activity
  • Use it for small purchases that keep you well below your credit limit
  • Don’t max it out!

A general rule of thumb is to keep your usage under 30% of your credit limit.

More Resources for Small Business Owners

From building credit to building a strong customer base, there’s a lot to do when you’re running a small business. Using a secured credit card to build credit is one way to gain more flexibility and earn perks.

Interested in other ways to reach your business goals? You supply the effort, and Simply Business will supply the know-how, from trends to time-sensitive information. Check out the tools and guides in our Resource Center.

Chris Bousquet

I went to college to be an accountant and graduated with a degree in creative writing. Words won out over numbers, but barely. All credit goes to my parents. Had they talked about anything other than banking at the dinner table growing up—and had they never bribed me with Pop-Tarts to read books, play with my Matchbox cars and quietly exercise my imagination—who knows where my left and right brain would be today.

Chris writes on a number of topics such as legal resources, small business taxes, and social media marketing.