A guide to prepaid business cards

A prepaid business card is a type of debit card that requires funds to be preloaded onto the card before it can be used for business purchases. The total amount that can be spent is limited by how much money has been preloaded on the card. Once the balance has been used up, more funds will need to be loaded onto the card to continue using it.

How Do Prepaid Business Cards Work?‍

A prepaid business card works just like a regular business credit or debit card. It can be used anywhere that accepts card transactions, including both physical stores and online retailers. Cash can also be withdrawn from some prepaid cards at ATMs.

Depending on the card issuer, the card can be funded through various methods, including bank transfer, direct deposit, or ACH, Ramp explains. Some issuers offer employee cards that can be funded from a main account.

Are Prepaid Cards the Same as Business Credit Cards?

Prepaid business cards and business credit cards have some notable differences. Prepaid cards are funded using one's own bank account, whereas credit cards have a revolving credit line. Since the spending power of a prepaid business card is determined by one's own funds, a credit check is not required to qualify for one. The downside is that prepaid business cards won't build business credit.‍

Secured business credit cards operate similarly to prepaid cards insofar as a security deposit determines the spending limit. With both types of cards, the balance must be replenished when it runs out to keep making purchases. Secured credit card issuers report to the business credit bureaus, making them a great option for building up credit score.

What's the Maximum Amount That Can Be Loaded Onto a Prepaid Card?

The maximum amount that can be loaded onto a prepaid business credit card depends on the card, but the amount can range from a few thousand to tens of thousands of dollars.‍

Many prepaid business cards can hold up to $100,000 in an account, but set much lower limits at the card level.

Benefits of Prepaid Cards for Businesses

Easily control employee spending

Putting the entire budget for a long-term project in the hands of a manager might be risky. With a prepaid business card, spending limits can be set for each major milestone. This setup can also help manage cash flow for sales teams or marketing departments. Every card can be issued with a specific amount to keep expenses within set parameters, and many prepaid business cards offer the option of spinning up virtual cards as well.

No lengthy reimbursement process

Traditional business expense systems require employees to use their personal cards for expenses. They then submit receipts for expense reimbursement, a cycle that can take weeks or even months to complete. That's asking a lot from your employees. With a prepaid card, none of that is necessary. Employee expenses are covered by company funds on their prepaid cards.  

Cleaner accounting records for tax filings

Using prepaid business credit cards contributes to more organized accounting records. Each transaction is automatically recorded and categorized, simplifying the business expense tracking process for accurate and efficient tax filings. This can also be helpful should a business have to respond to an audit by the IRS.

Disadvantages of Prepaid Business Cards

No business credit

Prepaid cards don't contribute to a business's credit history. Unlike traditional business credit cards, using a reloadable prepaid card doesn't involve borrowing against a credit limit or making repayments, which are key activities reported to credit bureaus that help build business credit.

Inflexible funding limits

Because prepaid cards require funds to be preloaded upfront, they can tie up business capital. Additionally, the maximum amount that can be preloaded onto a prepaid card is often lower than the credit limits offered by conventional business credit cards, which inhibits the ability to make larger business purchases.

No rewards for spending

For small business owners, a cashback or rewards program is one of the most attractive features of business credit cards. Prepaid cards generally don't offer rewards for spending.

Alternatives to Prepaid Business Cards

Prepaid cards can help manage money or employee spending, especially for businesses that are just starting out. But over the long term, they might not be the best choice for all businesses.

Business Debit Cards

A business debit card links directly to a business's savings or checking account. It offers another way to track and manage business expenses without the risk of debt or interest, without the chore of preloading cards weekly or monthly. These are useful for businesses that prefer spending only existing funds, but, like prepaid cards, business debit cards don't help build credit, and they don't offer rewards.

Corporate Business Credit Cards

‍Instead of being preloaded, corporate credit cards allow purchases to be made and a balance accrued up to a flexible spending limit, which must be paid in full at the end of each billing cycle. Like prepaid cards, they don't accumulate any interest.

Corporate credit cards come with added features, like expense management tools and finer controls for employee spending. They also report to the business credit bureaus, helping build a business's credit score, and they often come with rewards like cashback.

A business debit card links directly to a business's savings or checking account. It offers another way to track and manage business expenses without the risk of debt or interest, without the chore of preloading cards weekly or monthly. These are useful for businesses that prefer spending only existing funds, but, like prepaid cards, business debit cards don't help build credit, and they don't offer rewards.