Establishing Business Credit - Secured Business Credit Cards

Many businesses now use corporate credit cards to pay their bills, particularly those between their suppliers or vendors and themselves. There are a number of products on the market that can meet these needs. They include the traditional credit card that accumulates a balance monthly and requires only a minimum monthly payment to keep the account up to date as well as procurement cards that are used by many companies to purchase small items or supplies. An example of a procurement card might be a gas card that allows employees to fill up the company vehicles.

But another form of credit card used by businesses is called a secured business credit card. The difference between a traditional credit card and a secured business credit card is that the latter requires a business to open and maintain a savings account that provides a backup to the creditor in the case of any defaults or missed payments by the borrower.

A secured business credit card can be used to pay for all the same services as a regular business card and in order to open one a bank or credit card company will require a savings deposit that can range from a few hundred to several thousand dollars. The business is then allowed to use the secured business credit card up to the level of this deposit, although some lenders put additional restrictions on the borrowing amounts depending on the credit rating of the business.

In addition there are normally application and processing fees for a secured business credit card that will cover the administrative costs of the application including any credit or reference checks that the lending institution may wish to carry out. These fees vary from lender to lender. A secured business credit card is also usually more expensive to use than a conventional credit card and often has an annual fee and carries a higher rate of interest than a traditional credit card.

The advantages of a secured business credit card are that it allows the business to continue to access the convenience of using a credit card, even if their overall credit rating or credit score is not that great. Even companies and individuals that have faced serious financial problems like loan defaults and bankruptcies are eligible to apply for a secured business credit card. Sometimes a secured business credit card can make the difference between business survival and their downfall because it lets the business pay vendors who are reluctant to advance any more supplies unless they have a guarantee of cash or a secured business credit card in their hands.

The other major advantage of a secured business credit card is that it allows a business to build or restore their business credit rating. Many financial reporting agencies look at the successful use of a secured business credit card as a step on the road to rehabilitating poor credit scores and in the long term can assist a business to recover its credit rating and its reputation.

David Gass is President of Business Credit Services, Inc. His company publishes a weekly e-newsletter on Starting and Growing a Small Business at http://www.smallbusinessconsulting.com You can sign up for their free newsletter by visiting http://www.smallbusinessconsulting.com

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