Credit cards should come with a warning label. If you struggle with budgeting, high-limit credit cards may cause your small business more harm than good. They may even lower your personal credit score. To avoid this catastrophe many small business owners utilize prepaid credit cards in order to manage their finances and spending.
Pros for small business prepaid cards
With a prepaid card, you purchase the card for a specific amount. Just as you do with a gift card. This is an excellent way to limit spending and help manage purchases better.
Prepaid credit cards are safer than carrying cash. If the card is lost or stolen, you may be able to replace it, if you lose cash, it’s gone. Another advantage is that there is no need to provide credit history since you aren’t borrowing money. In this case, a credit check does not apply.
In some cases, it is possible to rebuild your credit with a prepaid business card. A few issuers will provide a small amount of credit as part of the credit card program, but be aware of the interest rate as it is usually high.
A prepaid card seems to have many advantages – but nothing comes without drawbacks.
The Cons
You must be aware that a prepaid card is very different from a credit card. In most cases, you cannot borrow money you don’t have. Therefore, you can only spend the amount that has been loaded to the card. Plus, prepaid cards do have fees. Prepaid business cards may not have an interest rate, but that does not mean they don’t come without a cost. You will incur fees to set up the card, use an ATM, and specific transactions. Depending on the prepaid card you may have additional fees not listed here.
A prepaid card does not improve your credit score. If you need to improve your score, you will need to find another financing option.
Credit card companies offer cash back rewards, airline miles, and hotel points in order for you to use that cards as much as possible. In comparison, there are no incentives with prepaid credit cards you do not earn rewards or points.
Carefully compare the pros and cons before you purchase a prepaid card.
If you are struggling with your small business finances and cannot qualify for traditional credit cards, or do not want to lose money on the fees incurred with prepaid business cards, consider American Finasco. By leveraging American Finasco, your debt can be managed, reduced, or consolidated while you stay focused on your business. Visit Contact Us and complete our Online Form for a free consultation or call (800) 299-2909. We look forward to speaking with you.