Credit Cards by Sean MacEntee on Flickr
Securing financing for your small business can be tricky, especially if you have no or poor credit history. You may face a frustrating Catch-22: You don’t qualify for certain financing because you need to build up your credit history, but you can’t build up your credit history without securing financing.
Lenders frequently treat your personal credit score as one of the biggest deciding factors on whether or not to offer you a business credit card (this is especially true when starting a new business). But don’t despair if your credit isn’t perfect or well-established yet; you still have options.
What Is a Secured Credit Card?
Most credit cards are what you would call unsecured, meaning that you’re not required to put down any sort of collateral in order to qualify for the line of credit they provide you. Credit card companies rely on credit scores and past credit history to determine eligibility (among other factors) for these cards, so if you’re just getting started or your credit score isn’t stellar, a regular business credit card isn’t likely to be a feasible source of funding for you. Thankfully that’s not the only kind of credit card available.
A secured credit card is different. This type of card requires that a refundable security deposit totaling a percentage of the credit line be put down before the card can be used. The percentage required will vary based on the credit card issuer and your individual financial circumstances, but be aware that the deposit could be upwards of 90% (if not all) of the total credit line amount. This cash deposit serves as collateral and gives the credit card company a way of insuring their investment when a business owner has bad credit or no credit.
Why Credit Matters
You might be thinking that it would just be easier to use a debit card or cash to handle your business finances, but you’d be selling yourself short if you did. Building credit is an essential step in growing a successful business. Not having a credit history for your business could prevent you from being able to take advantage of future opportunities for funding, expansion, and partnerships, so it’s vital that you work to build and nurture your credit score.
Using a secured credit card properly—by spending responsibly and paying your bill on time every cycle—can help you build credit quickly and easily. Before you know it, your credit score will rise and you’ll start to qualify for more types of funding with better terms and benefits.
Choosing the Right Card
Selecting the right secured credit card for your business needs is the first step in your journey to build better credit. Below are some of the best options on the market currently:
Capital One Secured Mastercard
While this card is technically a personal credit card, it serves the purpose of buoying your personal credit score, which will, in turn, qualify you for future credit and other financing options for your business. While many secured cards come with hefty security deposits, the Capital One Secured Mastercard may only require that a small percentage of the credit line be put down. In addition, this card has some great perks.
- No Annual Fee or Hidden Charges
Many of the credit cards that are geared towards those with bad credit or no credit also come complete with high annual usage fees and superfluous extra charges. This card, however, doesn’t punish you for trying to build or improve your credit and doesn’t hit you with any surprise fees.
- Flexible Security Deposit
As we mentioned, this card doesn’t require nearly as high of a percentage of your credit line for a security deposit. Based on your credit score, you may be able to choose from a sliding scale of how much to put down towards your total. If you’re on a fixed income, Capital One even allows you to pay your security deposit in installments (provided that it is paid in full within 80 days of your approval).
It’s worth noting of course that since this is a personal credit card, your possible credit limits are going to be considerably lower than they would be with a business credit card. But this is a great place to start if you truly have zero credit history or a dismal credit score.
Bento for Business Prepaid Mastercard
If you’re working with very weak or no personal credit, then you may want to consider the Bento for Business Prepaid Mastercard. Prepaid cards allow you to put a specific amount of money from your bank account onto the card for you and your employees to use.
Keep in mind that because it’s a prepaid card, not a credit card, Bento for Business won’t help you build your credit. That said, it can help you access convenient perks that you’d get with a business credit card, like employee cards, allowances, and oversite that you wouldn’t necessarily get with a secured credit card.
With the Bento for Business you get:
- Instant Approval
- No Credit Check
- FDIC-insured account
This card might work well in conjunction with a secured credit card—so you can build your credit and access convenient perks.
Wells Fargo Business Secured Credit Card
The Wells Fargo Business Secured credit card will certainly allow you more flexibility in spending than a personal card, but it does require that advanced deposit equal to the amount of your credit line. You can get anywhere from $500 to $25,000 credit, based on your deposit. While there are no foreign transaction fees, there is a $25 annual fee for usage. In exchange, it has some unique perks.
- Employee Cards
Unlike with a personal secured credit card, you can request up to 10 employee cards for your account so that your team can easily use your line of credit without every purchase having to be funneled through you.
- Rewards Program
Cash back is a relative rarity in the world of secured credit cards, and this one comes with a rewards program that earns you 1.5% cash back on all purchases.
Like the Discover it card, Wells Fargo will also periodically review your spending and payment habits and let you know when if you’ve qualified to graduate to an unsecured credit card.
No Credit History? No Problem.
While you might be tempted to feel defeated when you look at your business and realize that you don’t have what you need to qualify for a major loan or line of credit, there is no need to give up!
There are some great options out there to help you build (or rebuild) your credit quickly and painlessly so that you can keep moving onwards and upwards. Before you know it, you’ll be qualified for more substantial financing options and you’ll have fostered responsible spending habits that will serve you well for the rest of your life.
Before moving forward with any card, make sure to visit the card issuer’s website or speak to a representative about these perks, terms, and conditions for the most up to date information.