Unsecured credit lines such as business credit cards have been around for quite some time. It is no secret to the wealthy and savvy business owner. When properly structured, it does not report to personal credit files.
Business credit cards can be excellent cash flow tools, as the monthly debt service is usually lower than almost any other form of financing. The rates are usually very good; usually between 3-7% above prime.
While there are a variety of cards available in the marketplace, here are the five main types:
1 Business Debit Card – This card works like a business checkbook, because the limit is the amount of funds you currently have available in your business checking account. Every time you use it to make a purchase, the amount charged is deducted right from your account.
2 Prepaid Business Card – A convenient alternative to carrying cash, and it works just like a credit card. You add funds to your account, and whatever amount you add is available to use for purchases. You never overdraw on this account, and it also allows you to track your company expenses like a business check card. Some business owners issue these cards and pay their employees via direct deposit, which saves the company money in issuing standard paper checks.
3 Secured Business Credit Card – These types of credit cards are specifically designed for businesses with no credit, or less-than-perfect credit history. An initial security deposit is required, which establishes your card’s credit limit. In most cases, a minimum deposit of $500 is required; once you begin making purchases, you will receive invoices like a regular credit card.
4 Unsecured Business Credit Card – Credit limits are based upon many factors depending on the issuer, and can range from personal credit and/or business credit ratings, years in business, annual revenues, and so on. These credit cards give your business the opportunity to earn perks and rewards.
5 Business Charge Card – This card has all the convenience of a credit card, without the high price of interest. When using this card, you’ll have to pay your balance in full each billing cycle. Because you can’t carry a balance, a charge card doesn’t have a periodic or annual percentage rate, so there is no rate for a charge card issuer to disclose.
If you plan on paying your balance off each month, a card offering travel mile rewards or cash back bonuses may be the best choice; however, if you plan on maintaining an ongoing balance, a low introductory or standard APR might be a better option.
Remember to always read the fine print, so you completely understand the terms, conditions, and fees associated with a card.
Photo Credit: Hakan Dahlstrom, Flickr.