If you have bad credit but want to start a business, you can find financing options out there for you.
While there are very few business credit cards for bad credit, you can get a personal credit card that lets you pay for your company’s expenses and rebuild your FICO score.
We’ll help you find the right bad credit card for you, explain how to get a business card for bad credit with your personal history, and lay out exactly how secured credit cards work.
Best Business Credit Card: BBVA Compass Secured Visa® Business Credit Card
The only business credit card for bad credit on our list that’s specifically for businesses, the BBVA Secured Business Credit Card has a $40 annual fee (waived the first year), free employee cards, and a rewards rate of 1 CompassPoint per $1 spent on qualifying purchases with bonus rewards on the category of your choice.
Your credit line will be 90% of your security deposit, and the minimum deposit is $500.
The BBVA Secured is the only card on our list with an annual fee, but it can be worth it if you need employee cards.
The others on this list are personal credit cards, so they don’t offer accounting support, integrations with bookkeeping software, and other business-specific perks. If you think you’ll graduate from a secured card within a year or if you value the convenience of a business credit card, BBVA is right for you.
Best No Annual Fee Card: Discover It® Secured Card
The Discover It® Secured Card – No Annual Fee is a twofer: In addition to no annual fee, it offers 2% cash back on up to $1,000 spent per quarter on gas and restaurants and an unlimited 1% cash back elsewhere.
As a nice anniversary gift, Discover will also match all the cash back you’ve earned in your first year.
Finally, there are no foreign transactions or over-the-limit fees, and no late fee for your first late payment.
It’s also friendly to cardholders looking to move up the credit ladder. Discover automatically reviews your account every seven months for potentially upgrading you to an unsecured account.
The downside? You have to make a security deposit equal to your credit limit (minimum $200), which can be hard if you don’t have cash on hand. And unlike the BBVA card, it’s not technically one of the business credit cards for bad credit—so you can’t get employee cards or other business-friendly perks.
However, between the regular account reviews, no annual fee, and rewards, the Discover It Secured is one of the best bad credit options out there.
Best for Low Security Deposits: Capital One® Secured MasterCard®
The Capital One Secured MasterCard is a good option if you don’t have the money to make a large security deposit upfront.
With most secured cards, your security deposit has to match your credit limit. With Capital One though, a deposit of $49, $99, or $200 (depending on your credit history) gets you a credit limit of $200.
Plus, the card has no annual fee, which is relatively rare among secured credit cards. If you’re looking to rebuild your credit but don’t have the capital for a large security deposit, the Capital One card might be your best option.
Not sure which of the best business credit cards for bad credit on this list would be a good fit for you? Check out this Q&A breakdown to help you decide.
Can I get a business credit card using my personal credit history?
Many small businesses, especially newly founded ones, can’t provide the three to five years’ worth of sales and revenue that some lenders require for traditional business loans.
Luckily, owners of those businesses can apply for credit cards and be evaluated based on their personal credit score—that is, they can borrow based on their own track record of regular payments and low debt-to-credit ratio.
However, when you sign up for one of these cards, you’re personally guaranteeing it: Any unpaid debts are yours to cover, not the company’s. If your business goes bankrupt or you miss payments on the card, your personal credit score will suffer. In spite of the risk, however, a business credit card can provide flexible and affordable financing to small businesses.
If you have good credit, you can apply for a business credit card based on your high FICO score. However, you do expose yourself to some risk. If you’re unwilling to take that risk, or if you personally have less-than-stellar credit, a business credit card for bad credit might be the only option for you.
Keep in mind that if you choose a secured business credit card like the BBVA Compass, your usage might not be reported to consumer credit bureaus.
This can be a benefit if you’re worried about missing payments on the card, but if you think you can pay your debts on time and keep your debt utilization low, you’re better off with a personal secured card that builds your own credit score while also financing your business.
How does a secured credit card work?
Secured credit cards are meant for people (or businesses) with poor credit who want to build a solid history of on-time payments.
When you’re approved for a secured credit card, you have to put down a security deposit that you’ll borrow against. Typically, your deposit is equal to your credit limit—for example, if your credit limit is $500, the bank requires a $500 security deposit.
From there, you can use your secured card like a regular credit card. You make purchases with “borrowed” money from the bank, and you (ideally) avoid interest charges by paying your balance in full every month.
Your security deposit can’t be used to pay off your credit card balance—instead, it’s held by the bank as collateral in case you go into default.
It may seem strange to make a security deposit equal to your loan amount, but it’s a way to show banks that you’re a responsible borrower. If you make on-time payments and use the card wisely, your credit score will improve, and you’ll get your security deposit back when you “graduate” to an unsecured card.
The above options are just a few different types of business credit cards for bad credit and other similar products. If you’re ready to start building your credit score, use these options for stepping stones to better options!
from Fundera Ledger https://www.fundera.com/blog/business-credit-cards-for-bad-credit