Beware of secured business credit cards

Sunday, October 10th, 2010

Small businesses are the first casualties of a damaged credit history and find it impossible to get a business credit card that is unsecured. Most often small businesses use personal cards as they are left with no other choice. In such cases, when things go wrong in small business transactions, it has a direct bearing on the credit history of the individual.

Though the secured business credit card is the best option, practically, it is not viable as banks firm up the lending criteria if it is for business purposes. Though some issuers may have withdrawn cards from their portfolios, there could be many others. Interested parties could search online for secured cards or consult with their respective banks.

The biggest disadvantage businesses face with regard to the secured card is the collateral (deposit) that is required by the bank. While it might sound like a much better option instead of having to part with a personal asset, it could create problem where cash flow is not very good. The cash that is deposited as collateral gets stuck and cannot be accessed until the closure of the card or until the business shifts to an unsecured card. For small businesses requiring $10,000 as credit for instance, the deposit required would be the equivalent amount.

Businesses get tied up when the cash is blocked in this manner and they lose opportunities to secure good deals due to the cash deficit. Cash-strapped small businesses do not possess that kind of cash flow and rely on credit due to this fact. But the banks are in a safe position due to the collateral they demand from small businesses, especially since the failure rate with these small businesses is quite high.

New businesses that do not have a credit history also use secured credit cards since they are ineligible to use unsecured cards. Higher interest rates as well as other additional fees are levied on secured credit cards when compared to the unsecured cards. This could be a setback for new businesses that have just launched. Some banks have started issuance of the “starter business cards” that are much more appropriate than the secured cards.

Customers having secured business card are at a disadvantage as the interest rates and fees are very high and are also less competitive. But for businesses that need to work on their bad credit history there are very few viable options. However, there is one other option, which is the CSI global secure MasterCard. This is a good option for small businesses that seek the secured credit card.

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