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Unsecured Business Credit Cards Explained

 

Lots of work at home moms and other small business leaders often look for additional funding to start up operations, and an unsecured business credit card is a popular option. This kind of business loan allows for a beginning enterprise to cover the high operational costs of setting up a business, particularly one focused on production, where future product sales should help to pay off the initial expense. Business owners should know what an unsecured business line of credit is and how it may influence their future.

What Is an Unsecured Business Credit Card?

A credit card represents a credit line extended to a business for a maximum amount that the business can borrow from a bank or other company. An unsecured credit card or loan is one where no collateral is needed. A secured loan includes collateral.

Businesses that do not have existing assets to put up against a loan will select unsecured credit options. However, for those who do have some existing property or assets, secured loans can carry lower interest rates than unsecured ones.

Unsecured Business Credit Cards: APR and Interest Rates

A business credit card that is not offered against collateral will carry a relatively high APR or annual percentage rate. These credit cards commonly include an annual interest rate over 10%, which means that any unpaid amounts will get increased by 10% each year. Over time, that can add up to a lot. It's important for work at home moms and other small business borrowers to look at how to get the best interest rates for a business loan or credit card, and how to make sure the debt doesn't spiral out of control.

Unsecured Business Credit Cards: Fees and Penalties

Just like older and experienced business people always say, there's no such thing as something for nothing. In the case of loan money for a budding business, much of the cost is often in high fees and charges for facilitating the loan. There's also a very ominous clause attached to some unsecured business credit cards that should give any borrower pause.

A pre-payment penalty is a fee charged when the loan amount on the business credit card is paid back prematurely. Having a pre-payment penalty puts a card holder in a tough spot: if they pay off the card early, they will be charged more money, but if they don't pay the card off as early, it will continue to accumulate more interest. A pre-payment penalty is only to the advantage of the lender. Talk to credit card representatives up front about this and other potential fees involved in an unsecured business loan.

Caution for Beginning Businesses

Another essential element is that a business taking out an unsecured loan or credit card should clearly understand how they are going to pay it off in the future. Without a reasonable plan, the initial debt of starting up can sink a small business. Buying into a business loan without a solid way to get returns is kind of like buying stocks on margin, or in other words, gambling. An unsecured business loan can be the key to greater operational capacity for a startup business, as long as the leaders of that business understand what they will be up against and how they can plan for the best chances of successful repayment.

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