The Difference Between Secured and Unsecured Business Credit Cards

Utilizing business credit cards is a fantastic way to take control of your finances and open a door of opportunities toward the future of your company’s growth. You can view these lines of credit as similar to taking out a business loan; however, you only need to pay back the amount you spend each month, even if you get approved for a larger amount. This reduces the risk of spending what you need for your business if you stick to a budget and avoid unnecessary purchases. Of course, there is risk involved with every form of business financing – and much like any loan, there are two forms of business credit cards to choose from: secured and unsecured. 

What is a secured credit card?

A secured credit card begins with a foundation of a deposit submitted by the cardholder. Before acceptance, you must provide a financial amount that typically matches the limit on your credit card. For example, if you wish to be accepted for a $1,000 credit line, you would most likely need to place a deposit of $1,000. This is for the benefit of the credit card lender, as a deposit reduces the liability associated with missed payments. The loan is considered secure because you have placed collateral in the form of a deposit that the credit card company can collect if you cannot pay back the amount you’ve spent. Suppose you eventually decide to close your account, leaving it in good standing. In that case, many credit card companies will provide you with your deposit back – as it is typically only “held” to protect the parties involved. Individuals with poor or new credit who cannot qualify for secured credit cards are often who secured cards are the best fit.

What is an unsecured credit card?

An unsecured credit card is not significantly different than a secured credit card, with the significant difference being that you do not have to provide a deposit to be considered for acceptance. This is the route most individuals applying for credit cards are looking for – a credit card that does not require payment upfront. The vast majority of credit cards you hear about or see advertisements are unsecured, with other benefits and low-interest rates to reel customers in. However, these companies often require a higher credit score held by the cardholder, as the lender places more trust in the individual. Every financial situation is unique, though unsecured credit cards are typically considered more desirable to most who can qualify. That’s why at Fund&Grow, we help business owners obtain and manage multiple unsecured business credit cards to help fuel expenses through budgeted capital.

The bottom line

The difference between a secured and unsecured credit card is simply whether or not a deposit is required upfront prior to acceptance. A secured credit card may be easier or more difficult to obtain depending on your finances – if you have the matching deposit. Otherwise, an unsecured credit card is a preferred option if you are approved. In both cases, with the proper budgeting and understanding of your finances and future company growth, a business credit card is a great way to gain more flexibility in spending without taking out a loan – and it can also improve your credit score along the way.