The Right Credit Card for Your Business - Secured or Unsecured?

If your business has a bad credit history, it can pose a problem for you in many ways. If you are looking for a credit line, it will be hard for you to convince lending institutions to extend credit to you. This can be a big disadvantage for your company, as having access to a credit line has significant benefits to any business, and a bad credit rating will make it difficult to be qualified for credit.

Not having this facility can be a big disadvantage for the business, since if a need for resources comes up which can not be met by your business funds, you run the risk of threatening or even stopping your business from functioning. A bad credit score could adversely affect your reputation, and limit your options. With such a score you could either avail of unsecured credit card meant for businesses with bad credit or secured credit card. We will look at the differences between these two options and what will make one or the other option better suited for your business needs.

In order to get a secured credit card, you would need to put up a security deposit with the bank. The amount of money that you deposit will provide the collateral to the bank against which it will lend you money. If you have an account with the bank, the secured credit card will use a percentage of your account's balance to decide your credit limit. Thus if your business plans to make a huge purchase the amount of which exceeds your balance, you will have to take some additional steps to proceed. This uses such checks and balances to ensure that your credit stays within the limits of what you can repay comfortably to the bank, and reduces the bank's risks in extending you credit considerably.

An unsecured credit card needs no such guarantees in place to give you credit. Because of this lack of restriction of the credit limit by your collateral, there have to be other compensatory factors to the lender's benefit. So, these cards have higher interest rates and heavier penalties for delayed payments. Regardless, this option does provide the ability to get funds when you need them, without much restriction, and so, is used by a number of businesses.

One caveat to keep in mind here is that if you happen to have a bad credit history, or have a big debt, then going for an unsecured credit card has a potential of leading to disaster. You might dig yourself deeper into trouble by borrowing against unsecured credit card, with its higher interest rates, as well as heavier late payment penalties. If you do not have the discipline to make timely payments or have a big debt limiting you, this will only make matters worse and recovery more difficult.

Both options have their pros and cons. You have to choose what is right for your business, considering its unique needs. In order to make the decision between the two credit cards, look at the ability of your company to do good enough business in order to make payments in a timely way. Only if you are very sure you can do so should you sign up to get the unsecured credit card. Otherwise, you might add further to your woes by picking this option. Also consider if your company really needs the flexibility of funds that this credit card provides.

Companies with need to buy large quantities at a time for their manufacturing requirements might be apt for these credit cards, and this will provide a fairly useful and handy option to have. Even in this case, consider all the aspects and if you have concerns about adversely affecting your rating by using this card, then do not opt for this. However, if your business does need to make big purchases and you can be sure that you will be able to make timely payments, then the unsecured account could be the right choice for you.

Secured credit card is far safer if it can serve the purposes of your business adequately. With this you will not have to struggle with high interest rates and live in fear of doling out heavy penalty on delay in paying your monthly installments. 

Resources:

Business Credit Solutions
http://www.sovereignbank.com/business/credit/default.asp

Quicken® Credit Card
http://www.quicken.intuit.com/business-credit-card.jsp