Unsecured Business Credit Card

Unsecured business credit cards are still available today, though a couple of things can make them tough to get. First, if you’re a new business or entrepreneur just starting up it’s going to be hard to get an unsecured card. The second thing that makes it difficult is when the credit market is tight. Unfortunately, things are very tight right now.

Many small business owners think their only option is to take out a secured business credit card. You should try to avoid this if possible. If your business and personal credit histories are fairly clean, you should pursue unsecured business credit cards first.

Typically, to get an secured business credit card account, you have two options.

The first is to apply for a business credit card just like you would for a personal card. The application is similar. And, importantly, you sign as being personally responsible for the account.

The second secured card option is to supply a bank collateral in the form of cash. Your credit limit is set to whatever your cash collateral is. If you deposit $5,000 cash, your card limit is $5,000. Sometimes the bank or card company will pay you interest on the deposit, sometimes not. As long as you have collateral in the account, you have a corresponding credit balance. While you might wonder what good this is ... it's not "really" credit ... the benefits are that you sometimes need to make purchases with a credit card (online flights, rental cars, etc.) and you are building a credit history.

An unsecured business credit card works more like a personal credit card. No actual collateral is required. Your credit limit is determined by your income, your personal and business credit history, and the lender’s current lending policies.

It is typical that opening credit limits are small. This is normal.

What happens next is very important.

It is critical that you use your new credit in an exemplary way. In other words, you need to charge things on your card, and pay them off in a timely fashion. Some months, pay off your entire balance due. Other months, pay off slightly more than the minimum payment due (the bank wants to make money off you, so let them every once in a while). The key point is that you need to manage your account … never, never, never be late on a payment, or fail to pay at least the minimum due. (I prefer to not let the balance run up … make sure you pay it off in full at least every few months.)

After 6 months or so, after managing your first card well, it’s possible to apply for a second unsecured business credit card. Then, after every 3-6 months, apply for additional cards.

During this time, you should be receiving credit limit increases automatically. If not, it’s usually okay to ask for an increase.

If your first application is denied, then you’ll probably have to go with a secured business card.

Ultimately, you should have one or more accounts. These can be used for your business purchases. Obviously, you want to manage your accounts and not get into any problems with running up your balances and not being able to pay them off in a timely fashion. But you will have the peace of mind knowing your business is on the line rather than you personally when you use unsecured business credit cards.