Prepaid Business Credit Cards

6 Benefits and Drawbacks of Prepaid Business Credit Cards

  • May 19, 2022
  • 5 min read
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For many entrepreneurs, credit cards are the mode of payment for business expenses. However, there is yet another type of card you can use for everyday transactions: prepaid credit cards.

What are prepaid business credit cards?

A prepaid card has money loaded on it. The card issuer does not provide a specific amount of money to fund the card. You have to decide the amount and put it on the card.

You can make purchases with the card up to your prepaid amount.

Prepaid cards have a lot of benefits, but they also have some disadvantages. We’ll go over the benefits and drawbacks of prepaid cards in this blog post so you can decide if they’re the correct funding choice for your company.

Benefits of prepaid business credit cards

The benefits of prepaid business credit cards include the following:

1. Everyone is Eligible

No personal or business information is required when applying for a prepaid card. The minimum amount needed for activation determines how to obtain a prepaid card.

This is due to the lack of a bank or lender to borrow funds for the activation process. When applying for a prepaid card, no sensitive personal or company details are required, making acceptance simple.

2. Your Credit Score Doesn’t Matter

You may not be eligible for a credit card with a reasonable interest rate if your credit score is low. In fact, you may not qualify for any credit card if you don’t have good credit.

You won’t have to offer your credit history or financial statements if you use a prepaid business card. Because you are not borrowing money, you will not be subjected to a credit check when applying for a prepaid credit card.

On the other hand, a prepaid card will not help you enhance your credit score. As a result, if you’re considering a prepaid credit or debit card for this purpose, you may need to look for another funding source.

💡 Read more on how to improve your credit score.

3. Safety and Privacy

The prepaid card does not need personal details like a home or business address, nor is it tied to a bank account. If you choose not to link important information to your prepaid cards, it will be almost impossible to track down if lost or stolen.

4. You Have Control Over Your Company’s Spending

When all you have to do to make a purchase is swipe a card, spending can quickly spiral out of control. The transaction doesn’t feel as genuine without hard cash. In fact, research shows that people who use credit cards spend more.

Entrepreneurs often waste money and get overwhelmed with debt later on. As a result, many of them are compelled to seek help from debt relief companies to settle debts.

You won’t feel the anguish of handing over cash with a prepaid card, but you will be able to control your spending by setting your limit.

5. You can Set Spending Limits for Your Employees

If your staff has direct access to your company’s finances, you can use prepaid cards to track their spending.

When you give credit cards to your staff, it becomes easier to make transactions when they travel frequently. Plus, with a prepaid business card, you can not only monitor your accounts but can also impose spending limits for your staff.

6. They’re Less Expensive Than Overdraft Charges

Several entrepreneurs prefer prepaid credit cards to standard bank accounts because prepaid cards typically have lower overdraft fees than checking accounts. If you’re continuously charged $35 for withdrawing too much money from an ATM, a prepaid card will save you from overdrawing your account.

Overdraft fees can quickly pile up, so you can use a prepaid card to avoid this problem.

Drawbacks of prepaid business credit cards

There are no points, rewards, or advantages

Credit card firms provide several incentives to encourage you to use your card as frequently as possible. You can get cash back rewards, airline miles, hotel stays, and even free business equipment by using your credit card.

Prepaid cards, on the other hand, do not offer rewards. No points or incentives are earned when you make purchases with a prepaid card.

💡 Read more about rewards credit cards.

Given all of the expenses associated with prepaid cards, a small incentive for utilizing them could be advantageous. Sadly, prepaid credit cards and prepaid debit cards do not allow this.

You may have to pay some fees

Although prepaid business cards do not have an interest rate, that does not imply they are entirely free. You have to pay specific fees in the following cases:

  • A few specific transactions
  • ATM fees
  • Random activities
  • One-time activation fees

Budget constraints

Prepaid cards only contain the cardholder’s monies because there is no bank to borrow money from. Prepaid cards, unlike credit cards, do not allow for large amounts of revolving credit.

This might be a problem for employees who need to cover unexpected costs for business initiatives or transactions that turn out to be more expensive than expected.

The final verdict

Prepaid business credit cards have both benefits and drawbacks. Analyze your individual business needs and check if prepaid credit cards are feasible for you. If the card’s features suit your company’s policies and spending habits, you can opt for it.

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    AuthorLyle D. Solomon

    Lyle Solomon is a licensed attorney in California. He has been affiliated with law firms in California, Nevada, and Arizona since 1991. As the principal attorney of Oak View Law Group, he gives advice and writes articles to help people solve their debt problems. You can connect with him at Linkedin or tweet him at @lyle_solomon

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