If you're a work at home mom who wants to get startup money for any first-time costs of getting a business off the ground, you might be looking at a secured business credit card as an option for borrowing money with favorable interest rates and conditions.
Who Benefits from Secured Business Credit Cards?
Some of the people who apply for secured business loans or credit cards have bad credit, or just simply lack a full credit history. If this is you, you might find it really hard to get regular "unsecured" business credit cards or loans, where the loan is tied directly to your credit score. With secured business loans, the lender lets you put up assets against the amount of money that you want to borrow. If you do have decent credit but also have some existing assets like a house, car or owned office, you can still choose the secured business credit card to get lower interest rates for your loan.
In general, a secured loan presents less risk for a lender. In order to get the most benefit from a secured loan situation, you should have assets that will support the size of the loan that you want, and have a business plan that gives you a very good chance of paying off the loan early, or at least on time. The assets that you use can be property (homes or investment properties), vehicles, or even IRA or 401k accounts. Make sure to ask your lender about whether pre-payment penalties are on an agreement, or you could find yourself in a hard spot while trying to pay off your loan and drive down the interest.
Nailing Down a Secured Business Credit Card Agreement
When you're at the bank or on the phone with a lender asking about a secured business credit card, you might be surprised when the lender doesn't offer you the full value of your assets. When it comes to offering any kind of business loan, today's lenders are always looking to cover themselves. They generally limit credit extension to a percentage of the total asset values, to provide for less risk in the case of default. Another thing that you should understand about secured loans or credit cards is that in most agreements, lenders can take the collateral assets if they don't get the monthly payments on time. These situations can get very tricky, and that's one of the reasons that you may want to go with an unsecured loan option, even if the interest rates are little higher.
The Temporary Secured Business Credit Card Plan
Looking for a quick way to get a business loan generated? You might want to take advantage of a kind of "training wheels" agreement with a secured business loan. This is how it often works: the lender sets up a secured loan with you, and lets you build up credit over a period of time. Then, you make an agreement with the lender to switch over to an unsecured loan, where your nice new credit score can get you a lower interest rate. Some lenders are willing to take on these kinds of situations because they understand that your credit score is only a temporary marker for financial risk.
The more you can talk directly to your lender, the more you can pursue better lending arrangements based on trust. Shop around and put yourself out there as someone who is a "good risk" and knows how to handle money. With eligible assets, some hard work and a little luck, you'll find an agreeable business credit card deal.