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Updated: Aug 04, 2023

Business Prepaid Debit Cards: How They Work

Learn how business prepaid debit cards can work to help you manage business finances and allow business owners to provide spending power to employees.
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You’ve likely seen or heard of a personal prepaid debit card. You can load it with funds and spend it wherever debit cards are accepted.

These tools can be useful to help prevent you from overspending. They can also be a payment method when you can’t get approved for a bank account or credit card.

You may not be aware that businesses have access to prepaid debit cards. If your business can’t get approved for business credit cards or business checking accounts with business debit cards, a prepaid card may be a tool you want to consider.

Even if you can get approved for these other money management solutions, prepaid debit cards may still have a place in your business.

Here’s what you should know.

What is a Business Prepaid Debit Card?

A business prepaid debit card is a type of payment card your business can use to make purchases. These cards are not tied to a bank account and don’t offer any credit.

To use this type of card, you must load funds onto the card. Each card may offer different methods to add money to a prepaid debit card.

Once funds are loaded onto the card, you can swipe the card wherever debit cards are accepted. For instance, a Visa prepaid debit card is usually accepted everywhere Visa debit cards are accepted.

The good news:

You don’t have to have a credit score to get one. Instead, you sign up through a business prepaid debit card vendor. 

You don’t have a chance to get denied as you might with a bank account or a small business credit card.

Common features

Prepaid business cards may offer more than the ability to load money on a card and make purchases. 

Most cards allow you to set a spending limit for each prepaid card under your account. Even if they don’t, you’re limited to spending the amount of money loaded onto the card. 

This is extremely helpful if you plan to give employees cards. This way, trusted employees who need high spending limits can spend what they need, while new and untested employees can be limited to smaller amounts.

As with most cards, spending data is gathered by card providers. You can likely log into a website to see all of the spending activity that has taken place on each card.

Accounting software integration is also crucial with prepaid debit cards. Many cards work with popular software, such as QuickBooks or Xero. You can import transactions to minimize the time spent recording transactions.

Virtual cards may be an option with some cards. This way, employees can make digital purchases without worrying about losing a physical prepaid debit card.

Common costs and fees

Prepaid business debit cards are rarely free. Here is a list of common fees you may come across with the less-friendly debit card options.

  • Monthly fees - Expect to pay monthly fees based on the number of debit cards your company has. Some cards may come with a 60-day free trial or a similar period to try out the card without paying this fee.
  • User fees - Some cards may charge a per-user fee for each card rather than a simple monthly fee based on the number of users.
  • Setup fees - You may have to pay a fee to set up your account.
  • Load fees - A fee may be charged each time you load a card and may vary depending on how you load your card.
  • Transaction fees - Some cards charge a fee for each transaction you make on a card.
  • International transaction fees - Fees for making foreign transactions may exist.
  • Decline fees - You may have to pay a fee each time your card is declined.
  • Paper statement fees - Businesses that prefer paper statements may have to pay a fee for each statement.
  • Inactivity fees - If you don’t use your card within a certain period, you may have to pay an inactivity fee.

This list of fees is not all-inclusive. Make sure to look at a card’s entire fee schedule before choosing a business prepaid debit card.

Benefits of Business Prepaid Debit Cards

Prepaid business debit cards can be beneficial.

First, you only risk losing the amount of money on the card. Employees cannot spend more than you load on their specific card.

These cards don’t require a credit check to get set up. This can be helpful if you don’t want an inquiry on your credit report or you don’t feel you’d qualify for a business credit card.

These cards provide an easy alternative to get started separating personal and business expenses. The setup process is usually much less intense than starting a bank account, too. 

Business prepaid debit cards can also help you avoid costly overdraft fees. The purchase will be denied if you don’t have money on the card. You may have to pay a declined payment fee, but hopefully it is less than often overpriced overdraft fees.

In some cases, these cards may be FDIC-insured. Certain requirements must be met for insurance to kick in, so make sure the prepaid card offers this coverage before signing up. 

Keep in mind that FDIC coverage only kicks in if the issuing bank fails and the requirements are met.

Drawbacks of Business Prepaid Debit Cards

These cards aren’t perfect, though. They have several disadvantages you should carefully consider.

These cards often charge fees. The costs can add up quickly and may be more expensive than other options.

Sadly, almost every prepaid business debit card doesn’t pay rewards. With credit cards, you could earn valuable rewards to reinvest into your business.

Account management can be time-consuming. You have to monitor balances, reload cards when necessary, and keep up with several employee cards.

Spending is limited to the amount you load, which can sometimes be inconvenient. If you’re about to make a purchase but don’t have enough money on the card, you may have to delay the purchase.

Having a card lost or stolen could be a big headache. Fraud on these cards may not offer the protection a business credit card might.

Who May Want to Consider Business Prepaid Debit Cards

Some business owners may be focused on building credit and may not want an inquiry on their credit. Since prepaid debit cards don’t require an inquiry, this could be a better option than a credit card or bank account.

New business owners may like this option as they’re just getting started. You can use these cards to separate your business versus personal expenses easily. These cards are relatively easy to open compared to a credit card or bank account.

Another large audience that may prefer these cards is business owners who want employee cards

While you may have to pay a higher fee for multiple employee cards, these can be an excellent tool for empowering employees. The cards allow you to set limits so your employees can’t overspend. 

Business Prepaid Debit Cards vs. Business Checking Accounts

A business checking account could be an alternative to a prepaid business debit card.

A checking account will be more cumbersome to set up. You’ll have to provide specific documentation and may have to undergo a credit check.

Once the account is set up, you’ll likely have to pay a long list of possible fees.

However, checking accounts may be more convenient. 

You can directly receive payments to the account and have many more spending options. For example, you can send wire transfers or write a check from a checking account.

Many accounts allow for employee debit cards.

The biggest key to a business checking account is you have access to other features at the bank. You may be able to open a savings account, take out a loan, or use other banking features once you’re an established customer.

Business Prepaid Debit Cards vs. Business Credit Cards

Business credit cards offer different characteristics than a business prepaid debit card.

Business credit cards may allow you to earn valuable rewards or cash back. You could reinvest this into your business to help it grow faster.

Credit cards also often offer fraud protection. If an unauthorized charge is made, you may not be fully responsible if you report it within a certain period. Prepaid debit cards may not offer this protection.

Like prepaid debit cards, many credit cards provide the ability to add employee cards. Sometimes these are called authorized user cards.

Unfortunately, credit cards can allow you to spend more than you planned. If you carry a balance, you must pay interest charges on the balance owed in most cases.

That said:

Credit cards allow you to charge purchases today and pay for them in the future. If you pay them off in full by the deadline, you may be able to use that money for free thanks to the grace period.

Decide If Prepaid Business Debit Cards Work for Your Business

If prepaid business debit cards can help your business, start evaluating your business’s needs. Then, look at prepaid business debit card options to find the best solution for your company. 

Once you’ve identified your best option, move forward with implementing this tool to take advantage of the benefits these cards may offer.