Small business credit cards are a very good way of establishing a business credit history and separating your personal finances from business finances.
Most business credit cards rely on an owner’s credit history and ask for a personal guarantee. That is why both business Employer Identification Number (EIN) and Social Security Number are required on the application. If a business owner does not have a decent credit or his credit took a hit in the recent past, it can be hard for him to get an unsecured business credit card.
As with an individual card, there is a secured card solution for that. Have a look at our editor’s top picks for a secured card for small business use.
When starting a business, it is a great idea to separate your personal finances from your company’s. It makes sense from tax simplification and organizational point of view. It is also so much easier to keep track of your business spending and manage purchase returns with a separate card.
The problem with a new business is that it doesn’t have any credit history of its own.
If your personal credit is in a good shape, you might consider applying for a business credit card with your personal credit. It will require your personal guarantee on the card, and your application will be based on both your personal SSN and your business EIN number.
Read our review of the best unsecured business credit cards.
If your personal credit is not that great, or you find it is not a good idea to be personally responsible for your company spending, your solution is a secured business credit card.
Secured business credit cards come without a personal guarantee, but you need to put a security deposit to the bank that will cover the amount of your card credit limit.
Many secured credit card issuers report your activity on the card to credit bureaus only for your business credit and some of them report positive events on your personal credit as well. Negative events, like missed payments, or default will likely be reported on your personal credit as well.
With secured credit cards, you use the card during the month and receive a card activity statement at the end of the month. After that, you need to pay your card balance in full because the money on the security deposit is never used to cover your balance.
Prepaid cards work differently – you load the card with the money at the beginning of the period and use that funds for purchases. If your account runs out of money, you can not use your card until you reload it with money.
One of the biggest drawbacks of the prepaid cards is that they are not helping to build a credit because they do not report your credit to credit bureaus. Secured cards, on the opposite, report all your credit activity to the national credit bureaus, thus improving your credit score if you use the card responsibly.
One of the best prepaid business credit cards is a PEX prepaid VISA – this card is innovative in a way they allow you to control your employee cards and manage card limits.
Business credit cards (either secured or unsecured) work best for everyday business expenses, office supply, gas and small electronics purchases.
Secured business lines of credit are created for larger business purchases like vehicles or large business equipment. Some banks offer revolving business secured credit lines.
These business lines of credit are usually secured by business assets - receivables or inventory, fixed assets or real estate.
It is not unusual for a new business not to have any substantial assets to be used as a collateral.
If your business needs funding and a credit card limit is not enough, another option is a business loan, targeted specifically at businesses with bad credit. Several good examples are:
These services usually offer higher rates than traditional banks, but promise to fund you faster and are less picky with paperwork.
Secured cards look and work like a regular credit card except one major difference: it requires a security deposit that you put into the bank as collateral. The bank extends a credit line that usually matches a deposit amount. Good offers let you ask for a credit line increase after a period of good card use, thus making a so-called hybrid card when your credit line is larger than a credit limit. The best issuers can then offer you to graduate to a totally unsecured card in a matter of time.
Almost all secured business credit cards charge you an annual fee, and it is important to know if the bank allows you to close the card without closing the account. The trick is if you close a credit account, your credit score will take a hit because of the aggregated credit limit decrease.
There are some important details to watch when shopping for a secured card no matter for business or for personal use. Find a card with a grace period – it will help you to manage the card easier but not all cards offer that. It is very important to know if the card reports to 3 major credit bureaus – it is the only way the card can build your credit history. And as usual, the higher the limit and the lower the APR you can find, the better.
Our best picks for secured business credit cards are Wells Fargo Business Credit Card and BBVA Compass Secured Business Credit Card. Walls Fargo offers better terms for a credit limit and higher flat rewards rate, making it a winner in our comparison.
Your credit limit will exactly match your security deposit and can go from $500 to $25,000
Card charges a $25 annual fee every year. It is in line with that of a BBVA Compass Secured Card.
The card offers a choice of 1.5% cash back or 1 point per $1 in rewards on every purchase. This makes a card a better earner than BBVA Compass card.
APR on the card used to be lower than average. The APR is 11,90%+Prime rate (currently it is 15.65%). Current APR on that card is almost in line with a BBVA Compass offer.
The card offers 21-day grace period to pay off your balance.
Minimum security deposit is $500. The card offers a credit limit, that is only 90% of your security deposit, so if you want to have a room for your spending, consider having a larger security deposit.
$40 annual fee, waived for the first year. For a 2-year period that might take to rebuild a credit score, it averages for $20 per year, so it is a bit lower than another card in our review – Wells Fargo Business Secured card.
The card gives a 1% flat rewards card. It also allows you to select categories that you pend most for double and triple CompassPoints.
Employee cards can be added at no additional cost – this option is important for a small business card.
APR on the card is on the high end – 16.74%, which is significantly higher than another card in our comparison – Wells Fargo Business Secured.
The card offers 30% discount on selected Quick books products.
Chase Ink Business card offers flexible rewards with no annual fee and 0% APR for 12 months. $300 welcome bonus after spending $3,000 on a card makes it even more attractive.
If you plan to spend more than $5,000 in the first 3 months of the account, you can consider Chase Ink Business Preferred card with its 80,000 spending bonus (o $1,000 if redeemed for travel) that easily offset the modest $95 annual fee.
no annual fee
up to 5% cash back
American Express OPEN credit card has a generous welcome offer with 50,000 miles after spending $5,000 in the first tree months of the account. Great rewards opportunities – 3x rewards on a selected category and 2x rewards on remaining 4 categories make this card a great reward earning vehicle.
Cash Rewards for Business Bank of America MasterCard is a card that offers 3% cashback on gas and office supplies, 2% back on restaurants and 1% on all other purchases. 0% APR for the first nine months of the account gives you a break in paying off your initial business expenses.
no annual fee
3% cash back on gas and office needs
2% on restaurants
1% on other purchases
0 intro APR for 9 months
Capital One Spark Cash for Business is a rare flat rate 2% cashback credit card. $500 initial bonus and intro 0% APR offer makes a card a great pick if you can get approved.