Why choose a secured business credit card for your small business

A secured credit card is another option for building business credit if your business has a limited or poor credit history. Over time, the credit you build using a secured card can allow you to access unsecured credit cards and other forms of lending.

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Here’s everything you need to know about secured business credit cards.

What is a secured business credit card?

A secured business credit card is a credit card that requires a cash deposit as collateral, which also serves as your credit limit. This type of card is often used by businesses that are new, have limited credit history, or are working to improve their credit.

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The security deposit on a secured card acts as collateral for the card issuer, reducing their risk in the case of missed payments. Just like with an unsecured business credit card, a secured credit card allows you to build business credit. This can be especially helpful for small businesses looking to separate personal and business finances while building the creditworthiness of their business.

How do secured business credit cards work?

Secured business credit cards function by requiring the cardholder to make an initial cash deposit, which directly determines the card's credit limit. For example, a $1,000 deposit would typically allow for a $1,000 line of credit. Unlike prepaid cards, secured credit cards provide actual credit, allowing businesses to make purchases up to the credit limit and pay the balance down monthly, similar to traditional credit cards.

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When a business uses a secured credit card responsibly, by making timely payments and keeping balances low, it reflects positively on your business’s credit report. Over time, this responsible usage can help improve your business credit score, making it easier to qualify for larger, unsecured lines of credit.

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Many credit card issuers also offer the opportunity to upgrade to an unsecured card after a period of demonstrated financial responsibility, which can further enhance the business’s credit options and financial flexibility.

Benefits of a secured business credit card

A secured business credit card has a number of benefits:

• Using a secured loan or credit card can rebuild your business credit score.
• Startups and small businesses may not have a sufficient credit history, so using secured credit cards can help establish a credit history.
• Employees may be added to the account to make purchases for the business.
• Similar to regular business credit cards, secured cards may have rewards.

Can you use a secured business credit card for personal use?

While it's not illegal to use a secured business credit card for personal expenses, it will likely violate the terms and conditions of your card agreement. This can come with some serious consequences, like penalties, the loss of certain benefits like reward points earned on business expenses, or cancellation of the card.

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Moreover, in the case of an LLC or a corporation, using a business credit card for personal expenses can undermine the legal separation between the business and the individual. This separation is crucial for maintaining limited liability status, and breaching it could expose personal assets to business liabilities.

Can I get a secured credit card for $10,000?

Most secured business credit card issuers don't typically offer limits as high as $10,000, as secured cards are aimed at businesses building or repairing credit and thus often have lower credit limits. However, some issuers may accommodate higher limits if you can provide a corresponding security deposit.

How to get a secured business credit card

Here are the typical steps to apply for a business credit card:

Research potential card issuers

Begin by identifying credit card issuers that offer secured business credit cards so that you can compare their terms. Look for cards with no annual fees or foreign transaction fees, good rewards programs, and relatively low APR or 0% introductory APR.

Check credit reporting practices

Confirm that the issuer reports to business credit bureaus such as Experian Business, Equifax Small Business, and Dun & Bradstreet. Regular reporting is crucial as it makes sure that your business’s credit activities are accurately reflected in its credit reports, helping you build a strong credit profile.

Gather required documentation

Prepare necessary documents that may include business financial statements, tax identification numbers, business licenses, and personal identification. Having these documents ready can streamline the application process.

Complete the application

Apply for the card either online or in person, depending on the issuer’s process. Provide accurate information about your business and personal finances as required. This step typically involves detailing your business's financial health and demonstrating the stability and legality of your operation.

Submit your security deposit

Once approved, you'll need to pay a security deposit. This deposit sets your credit limit and is held by the credit card issuer as collateral against your spending. Make sure the deposit amount is within your budget while still providing enough credit to be useful for business expenses.

Activate and manage your card

After your account is set up and your card is received, activate it following the issuer’s instructions. Start using your card for business-related expenses. It's crucial to manage the card responsibly by making on-time payments and keeping balances low relative to your credit limit. This will help you to improve your credit score and qualify for an unsecured credit card in the future.

Building your business credit with the Ramp business charge card

You may struggle to get approved for traditional credit cards if you have limited or poor credit. However, your business has other options.

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Ramp is a corporate charge that qualifies based on factors like your business's revenue and capital in the bank—not your credit score. If you're an e-commerce business, you may qualify for our sales-based underwriting.

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Here's what to expect with a Ramp card:

• Get rewards such as unlimited 1.5% cashback on all cards.
• Get approval for higher limits than traditional cards.
• Use first-class software to integrate your accounting workflows.
• Ramp gives you 5-in-1 software: cards, expenses, bills, accounting, and reporting in one.

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Ramp can have your business earning rewards and building credit in minutes.