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Secured vs. Prepaid Business Credit Card: Your Best Option

Margaret Spencer

Contributing Writer at Fundera
Margaret Spencer writes about small business finance and entrepreneurship. She is interested in financial empowerment for small business owners across industries, and passionate about sharing insights on accessibility and communication to help entrepreneurs grow.
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You might be looking into a secured vs. prepaid business credit card if you’re struggling with your credit score, or trying to figure out which is best to build credit history. Both cards are excellent options for business owners—but each has ideal uses for different scenarios. And you’ll want to figure out which situation you’re in before you choose.

We’ll go through the differences between a secured vs. prepaid business credit card, why you might want either—or maybe even both—and then show you great options for your business. You’ll be able to sort through your goals for a business credit card and maybe even the future of your company, too.

After all, there’s no reason everyone can’t have a good credit score to help them reach their business goals, so we’ll show you how both of these tools can help you get there.

Understanding the Differences Between Secured vs. Prepaid Business Credit Cards

Before you can determine the best credit card for your business, you’ll need to take the time to understand the different kinds of business credit cards available. There are, of course, secured vs. prepaid business credit cards—but also secured vs. unsecured business credit cards, too.

Unsecured Business Credit Card

Just like an unsecured loan, an unsecured credit card means that a card issuer—like Visa, American Express, or Mastercard—offers you a line of credit without any collateral up front.

The line of credit you’ll get as a cardholder is based on your credit score and past responsibility with debt, including payment history. So, if you don’t have a strong record of repaying your credit card or loan bills or time, extending an unsecured line of credit might be too high of a risk for a card issuer.

If your credit doesn’t currently qualify you for an unsecured business credit card, you’ll want to look into alternatives to help you build your credit score while you grow your business.

Secured Credit Card

A secured business credit card, as the name suggests, is secured by collateral—in this case, a cash deposit. This ensures that, even if you aren’t able to pay your credit card bill, your card issuer will be able to recoup payment. Like with an unsecured card, a lender determines a limit based on your credit score.

It’s still a credit card, and requires the same on-time payments and responsible usage as an unsecured card—which means that if you miss payments, you’ll knock down your credit score, and if you make them in full and on time, you’ll have the opportunity to build your score. 

Important: Secured Credit ≠ Debit

Both secured credit and debit cards typically have spending limits, either equal to the line of credit or account balance respectively, effectively preventing users from spending money they don’t have.

But a secured credit card is paid off monthly, not deducted from your account balance or deposit every time you spend. Secured credit cards help prevent you from spending more than your deposit each month, but that doesn’t necessarily protect you from risk—or debt.

No matter what your line of credit is, staying on top of payments and spending is the only way to build a healthy credit score.

Prepaid Business Credit or Debit Card

Even if you’re eager to boost your credit score, sometimes the smartest financial decision for your business—and personal finances—is to hold off on getting a credit card.

Despite the name, a prepaid business credit card actually functions like a debit card. It won’t increase your score, but it also won’t damage it, either, since the activity on these cards isn’t reported into credit bureaus. With a prepaid business credit or debit card, the user preloads with the value of their choice from a business bank account—which means you can’t spend more than their limit.

Prepaid cards also carry logos of major credit card companies like Visa or Mastercard, so they’ll work where most credit cards are accepted. If your business requires multiple team members or contractors to make payments, prepaid cards offer a more secure alternative to a card linked directly to your business checking account.

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How to Choose Between a Secured vs. Prepaid Business Credit Card for Your Company

Now, onto that decision between secured vs. prepaid business credit cards. The main factors here will be your own credit and financial health, plus your financial goals for your business.

5 Reasons to Choose a Secured Credit Card for Your Business

Individuals with fair-to-good credit can use a secured card in order to build credit as the owner of a new or growing business. If you’re planning to apply for your first business credit card, a secured card can be a good way to transition to an unsecured line of credit as you grow, too. 

1. You need to build or rebuild a foundation of good personal credit as a business owner.

As a business owner, you’re at the helm of a business’s financials—which means you, personally, need to begin with a strong personal credit history. Applying for a secured credit card to start will allow you to build up your own good foundation of personal credit if you don’t have one. You won’t be able to apply for unsecured credit cards, or be eligible for other debt financing products, without a strong credit score on your own.

2. You want to build toward a small business loan.

Although opening a secured credit card account will not guarantee your approval for an unsecured credit cared or business loan product overnight, establishing a consistent payment track record will help you increase your credit score. And that makes you a stronger loan candidate down the road for better products, better rates, and better repayment terms. 

3. You’re confident you won’t carry a card balance.

A perfect record of secured credit card payments will build that credit score, upping your chances of earning a credit score that sets your business up for financial success. And, there’s a huge benefit for you as an entrepreneur to gain experience using credit responsibly with a lower risk of going into debt. All the same, secured credit cards still incur additional fees and interest, and penalize late and defaulted payments.

4. You want to form a relationship with a card issuer.

Some secured credit cards, like the Bank of America Secured Card, will allow you to graduate to an unsecured business credit card after you demonstrate responsible use. Not every credit card issuer will do this (and, frankly, some that don’t, like the Capital One Secured Mastercard, are just better credit cards regardless). Still, it’s worth considering.

5. You can afford the required deposit.

The deposit you put down for a secured credit card doesn’t go toward paying your balance, but is held as collateral and returned to you when the account is closed—similar to a safety deposit for a rental. For this reason, make sure you can afford to part with the cash going toward your card deposit.

Why a Secured Credit Card Might Not Work for Your Business

Keep in mind that although you’re setting up the account for your business, secured cards are directly tied to your personal credit. Card issuers will look at your personal history, including payments, spending, and credit score, so don’t apply for a credit card if you aren’t prepared. And any missed payments, of course, will impact your credit score negatively in the same way that good behavior will be positively reflected.

Like an unsecured credit card, secured cards incur the same fees and regulations, which can add up. Make sure to consider the fees and minimum payments when considering cards. If paying an additional bill in full (and on time) isn’t manageable for you right now, it’s better to hold off on a credit card, and avoid the risk of getting behind on payments or potentially damaging your credit score.

Best Secured Credit Card for Building or Rebuilding Credit: Capital One Secured Mastercard

If you think that a secured credit card sounds like the right choice for you, we recommend the Capital One Secured Mastercard. 

This is a zero-fee secured personal card, which means lenders will extend a line of credit based on your personal financial history. If your credit score is above 550, this card can help you access the funds you need while continuing to build credit with on-time, in-full payments. That’ll help you obtain the unsecured business credit card you might want—as well as any small business financing in the future.

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5 Reasons to Choose a Secured Credit Card for Your Business

Sometimes, not hurting your credit is just as important as actively improving it. If you’re eager to raise your score, but worried opening a credit card account will lead you into debt, consider focusing on good financial practices, and working your way up to a credit account. A prepaid card won’t boost your credit score itself, but it can help you manage spending, plan out finances, and track transactions.

1. They’re very straightforward to use.

In the world of secured vs. prepaid business credit cards, these preloaded debit-like options have fewer fees, no interest, and a prepaid spending limit that you set as the business owner. That makes this type of card is the most straightforward option—no mental hoops to jump through about whether or not you’ll have to make your monthly bill.

2. You’re not certain you can pay off your monthly bills.

If you’re worried about making payments on time in the near future, consider using a prepaid card until you feel comfortable switching to a secured business credit card. You can use a prepaid business credit card backed by a major credit card company (most cards are) anywhere credit cards are accepted, so you don’t sacrifice convenience for security.

3. You don’t want to trust employees with a credit card.

If you have multiple cards on a main account, regardless of whether those other cards are help by employees, family, or strangers, the main accountholder is responsible for making sure those transactions get paid off. Otherwise, it’s a hit to that person’s credit. Prepaid business credit cards are great if you want to give employees freedom to make purchases without risk. Prepaid cards can also help prevent unauthorized spending, since you will control how much to preload on a card and set spending limits.

4. You want to form good financial habits.

A prepaid card doesn’t actively build credit, so you can’t use it to boost your score. But it can help you get organized and back on track, especially if you struggle with financial management. Many prepaid business credit cards come with comprehensive apps that allow you to keep track of finances and spending more easily. And, many even hook into your business accounting software, like QuickBooks.

5. You want to supplement a credit card.

Prepaid or business debit cards also work well for companies that need the flexibility of multiple cards. Instead of using your business credit card for both major expenses and employee usage and charges, you might add a card with a fixed, prepaid limit.

Best Prepaid Business Credit Card: Bento for Business Credit Card

If this sounds like your choice, the Bento for Business Card could work for you, since you can apply for this prepaid business credit card without even a credit check.

Among the features that makes Bento stand out is its comprehensive and user-friendly online dashboard and QuickBooks integration. If one of your priorities with using a prepaid vs. secured business credit card is building up good financial habits and understanding your spending, Bento is one of your best options because of its tool suite.

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The Best Way to Decide Between a Secured vs. Prepaid Business Credit Card: Define Your Goals

Wherever you are in your business credit card application process for secured vs. prepaid business credit cards, there’s a solution that suits your finances. But it can be tricky to know which product to choose without a clear objective.

Here are the priorities you should define to help yourself to choose:

Building Credit vs. Convenience

  • Secured: Build or rebuild your personal credit to graduate into products that’ll help you build business credit, too. But you’ll have to pay your bills on time, which isn’t as convenient. 
  • Prepaid: A prepaid debit or credit card won’t affect your credit score, but it’s more convenient in that you don’t have to worry about bills, or the impact of your spending.

Forming Good Habits vs. Curbing Spending

  • Secured: You’ll need to learn financial management skills to make on-time payments and spend responsibly.
  • Prepaid: Because you’re preloading a prepaid card, you can decrease your spending by only loading what you allow yourself to spend.

Establishing credit is essential to growing your business, but it’s important to understand the costs and risks of opening an account with a credit card company. If you’re uncertain about which card is right for you—or which cards you’re eligible for—you can always use a low-fee prepaid card until you make a decision without worrying about recurring payments or defaulting.

Both secured and prepaid debit cards can help your business mature financially, without the risk of major overspending, or debt, and contributing positively to your credit stability.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Margaret Spencer

Contributing Writer at Fundera
Margaret Spencer writes about small business finance and entrepreneurship. She is interested in financial empowerment for small business owners across industries, and passionate about sharing insights on accessibility and communication to help entrepreneurs grow.

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