A Few Facts To Help Consumers Regarding Secured Business Credit Cards
Need for Business Credit Cards
A number of expenses have to be borne by a business, regardless of its operational status. Costs can be classified as fixed or variable. Again, they may be explicit or implicit. Thus every business needs money for its day-to-day operations. In addition to working capital requirements, a business needs cheap credit to buy equipment, to pay for business trips, and in general, track business expenses. Typically, a business needs many credit cards for ensuring smooth operations.
For firms with good credit history, unsecured business credit card accounts are a feasible option. Lenders would be more than willing to provide cheap credit to well established business firms. Such firms will benefit in the form of low annual percentage rate on the cards in addition to high credit limits. However unsecured business charge card accounts may not be unavailable to small business firms.
Secured Business Credit Cards
A secured business credit card account is useful for a firm that does not have a credit history. A start up may require a secured business charge card since the lender may be unwilling to provide a line of credit due to the absence of a well established credit history. A firm with bad credit history will also find it hard to obtain an unsecured business credit card account.
Filing for bankruptcy or a past history of credit card account debts will definitely disqualify a firm from obtaining cheap and easy credit. For such firms, credit cards secured by the assets of the business may be the only option. Sometimes charge cards may be secured by a savings deposit. The application fees and interest rates for secured credit cards are higher than those for unsecured cards.
Generally, more than one business charge card is issued at a time. In case the initial amount of deposit is insufficient to cover the cost of issuing other cards, a business will be expected to deposit additional cash usually in increments of $100. A cashier’s check would be the ideal way of funding the deposit for unsecured credit cards, since they are processed faster than business or personal checks.
Benefits of Secured Business Credit Cards
The hassle of obtaining secured business credit cards is compensated by the numerous benefits offered by these cards. For instance, an employer is entitled to individual billing for all credit cards. In other words, he receives detailed spending reports and is thus able to keep track of the amount of money spent on various transactions.
This is especially useful in case of business trips undertaken by employees. In case the flight tickets are booked using the charge card account, travel insurance can be availed. Rental car insurance and insurance against theft and damage may also be available.
Moreover, a business may be able to obtain warranty for an extended period of time by using the secured business charge card account to purchase the equipment. Enrolling with a business credit bureau can help the business establish its credit history and this may help the firm obtain unsecured business charge cards in future.
Risks Associated with Secured Business Credit Cards
A high rate of interest on the secured credit card account may make it difficult for a small business to make regular monthly payments. This may result in damaging its credit history. Moreover, a small firm may find it increasingly difficult to ensure management checks to prevent the misuse of the credit card accounts by the employees. Since the charge card account is secured, it makes the owner of the business personally liable for all expenses.
Business charge card accounts are a must for every business. Although unsecured business charge cards are best for firms, secured business charge cards may eventually pave the way for unsecured credit card accounts for firms with poor or no credit history.
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Filed under Finance by on Apr 27th, 2011. 