The poor economy has seen more and more people take the plunge and go into business for themselves. As a brand new business owner any credit card decision – even for a business credit card – is likely to be based on your personal credit score to a great extent and if your credit is worse than fair (600-680) then getting a business card is going to be tough. But having a business credit card can be a great way to build up a business credit rating that is separate from your personal rating, something that will allow your business to grow and to qualify for loans, leases and better business credit cards. In this situation a secured business credit card is often the best answer.
Secured credit cards work in much the same way as personal secured cards do. You have to make an initial security deposit and then you are granted a credit card with a credit line that is equal to, or sometimes larger, than the security deposit you make. All credit card activity is reported to the credit bureaus and if the reports are good then your credit rating will rise and you should eventually be able to get a good unsecured credit card.
One problem business owners will face theses days is that since the big credit crunch many of the banks that used to offer secured business credit cards have ceased to do so. Feeling that such things carry a risk that is too high many lenders made the decision to cut them out of their credit card product offerings all together.
Citi Business Secured MasterCard
The big news recently has been that Citi – which you may know better by their former name Citibank – have begun offering their secured credit card to businesses. The terms are very similar to their personal secured card product which actually means they are very reasonable.
The minimum security deposit required for the account is $200 and your credit card limit is equal to your security deposit amount. The security deposit is placed in an 18 month CD. After 18 months your secured business credit card account will be reviewed. If you have maintained a good payment history you should then be offered an unsecured Citi business credit card. The CD earns a rate of interest of 1% and if you are offered a new unsecured card that $200 plus any interest is credited to your new credit card or issued to you as a check. This represents probably the best deal on a secured business credit card that has ever been offered.
The terms on the secured card are fairly reasonable as well, with an 18.24% APR offered on the card that is a lot less than many other secured cards, personal or business.
The Alternative to a Secured Business Credit Card
If you choose not to try to find a secured business credit card the alternative is to begin building up your personal credit and business credit at the same time. Many business owners take out a personal secured credit card, which are much easier to find and try to obtain store cards under their business name. Store cards are easier to obtain but they do still help you build credit. Trying to obtain a store card at a place like Walmart, Office depot or Target will not only give you a card to help you build credit but can be useful as well as these stores sell items that a business actually uses, from copier paper to computers.
The MicroLoan Visa Card
There is another alternative to trying to find a secured card, or obtain store cards and build credit that way. It is not the most economical alternative but it should work. The Microloan Visa card has a maximum credit limit of $750 and that credit limit will instantly be eaten up by the $125 application fee and the variable annual fee but it is granted to businesses with limited, bad or no credit.
Once you own it the card is a “regular” credit card and all activity on the card will be reported to the three major credit bureaus. The 23% APR is higher than most unsecured business credit cards but lower than that charged on most personal secured credit cards which can go as high as 49%!
If you maintain a good payment record on the Visa Microloan credit card you will not be directly upgraded to an unsecured product in the way that the Citi card does but your businesses newly established credit rating should qualify you for the kind of unsecured business credit cards that are offered to those with fair to good credit, and fortunately the number of those kinds of credit cards are much greater.