Business Secured Credit Card

Monday, June 11, 2012 at 3:56pm by Site Administrator

Why Can’t I Find a Secured Business Credit Card?


Many new business owners find it difficult to get loans or credit of any type due simply to the lack of credit history. It is certainly possible to piggyback business credit off your personal credit history, but any business advisor will tell you this is not a great idea. If there is trouble with either the business or personal finances, the other one can suffer just as much.

One alternative used by many people to build a credit history, or repair damaged scores, is the secured credit card. It is often the first option new business owners consider in a bid to establish lender trust. The problem now is that those ubiquitous secured credit offers by direct mail have dwindled, and the major banks have largely stopped offering them at all. Secured business credit cards can still be found, but there are alternatives to consider in the effort to establish a credit history for your business.


Why Aren’t Banks Offering Secured Business Credit?

Marketing research from Chicago-based Mintel Comperemedia found a dramatic drop in direct mail offers of secured credit. From 2001 to 2008, 122 million mail offers dropped to less than a million, which can be compared with an 18% drop in mail offers for credit cards in general. Washington Mutual, Capital One, and other large banks have closed secured credit programs primarily for one reason: they are not profitable. This is an important fact to keep in mind when searching for secured business credit online. Offers can still be found, and they will tend to carry a number of associated fees to cover administrative costs and profit.

It is likely you will get better terms by using your personal credit history to obtain business credit. This option isn’t open to everyone, however, since banks generally want a 650 or higher credit score. It can also spell trouble down the road for the borrower. Fortunately, there are still several reputable sources for secured business credit, including Wells Fargo, Orchard Bank, and Citi, which allows the card holder to store security funds in an interest-bearing certificate of deposit.

Secured credit is only a tactic for establishing credit history. The borrowing limits are too low for many businesses, and the fees can be expensive for a fledgling enterprise. Alternative options may be more useful in the long run and should be investigated, whether or not you choose to apply for secured credit.


What Are Viable Alternatives to Build Business Credit?

There has been a lot of growth in the number of credit-building services for new businesses. These should be avoided because any actions they may take can be done by you at a much lower cost. The process starts with establishing business identity with an Employer Identification Number (EIN) and Dun & Bradstreet number. The EIN will be necessary for opening vendor accounts. Dun & Bradstreet is a business credit bureau. Opening an account here will start a credit history for your business and allow you to manually enter all business credit accounts. The next step is obtaining an exclusive phone line for the business and registering this with the credit bureau.

A number of vendors will offer credit accounts that fall outside the scope of traditional credit cards. A popular option is the commercial or fleet credit made available directly from oil companies. Other options are a UPS account and office supply store accounts. You should investigate the options available with any vendor your business uses on a regular basis.

After registering these accounts with the credit bureau, your business is on its way to achieving a credit history. Business credit offers will likely begin arriving in the mail immediately, but you should wait for six months before applying. Six months of credit history is generally sufficient to obtain a credit card, and it is always a good idea to avoid excessive credit checks as these lower your overall score. Plus you will need to obtain many offers for comparison. There is no best credit offer, but there is a best one for each particular business.

It’s important to continue focusing on the credit history after receiving unsecured credit. As the business credit score grows, so do the opportunities to receive loans or higher credit limits that may be needed in the future. For a rating boost, try to pay your balances electronically before the creditor sends an invoice. This nets bonus points for credit scores in the business world.

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