You have to spend money to make money—but the way you spend your money can impact how much money you end up making. Simply put, some methods of spending are better than others, and today we’re diving into prepaid (or stored value) cards for your small business.

What is a prepaid or stored value card?

A prepaid card (sometimes called a stored value card) is one that needs to be pre-loaded with funds before it can be used. The funds for a prepaid card are your own money, like a debit card or a check from a bank account. The difference is that the prepaid card is not linked to a bank account or a line of credit (like a credit card). 

Most card-issuers provide a prepaid card option, and prepaid cards are accepted anywhere credit or debit cards are accepted

Prepaid card pros and cons

Benefits of prepaid cards Drawbacks of prepaid cards
  • Anyone can qualify and use
  • No bank account required
  • Enforced budgeting
  • Security
  • Fees for loading and using
  • Few protections for loss
  • No credit building
  • No rewards
  • Overdraft fees

Prepaid card pros 

Prepaid cards are often dismissed as expensive and inconvenient, but they meet the needs of consumers or employees who may not fit the typical mold. Prepaid cards are available for use without the anchor of a bank account or credit score, unlike credit cards and charge cards which might turn you away. Individuals without bank accounts can utilize prepaid cards instead of cash, which allows them to make online purchases and track expenses that would be impossible with cash alone. 

Prepaid cards are also a more ironclad form of budgeting, getting shut off once the funds have been exhausted. Some prepaid cards will allow a slight overdraft for a fee, but you won’t get into the same trouble you could find with a credit card. 

Prepaid card cons

The biggest complaints against prepaid cards all revolve around fees. There are a great number of fees associated with prepaid cards. You might incur fees for loading, using, activating, and closing prepaid card accounts. Going over your balance or zeroing out your card may also levy fees. If your card is lost or used without your permission, you are simply out that money (unlike credit and debit cards which usually offer some type of fraud protection). 

While it can be helpful to get a prepaid card when you have poor credit, a significant drawback is that you can’t build credit with a prepaid card. Prepaid cards do not report to credit bureaus, so those purchases will not work to improve your credit score like a credit or charge card would. Similarly, you’ll miss out on the rewards and points accrual that you might enjoy with a credit card.

How do prepaid cards work?

It’s helpful to think of prepaid cards like gift cards. You get the card from the issuer—like a store, bank, or other financial institution—and load funds onto it. You can use the card until the funds are exhausted. 

Adding funds

There are a few different methods for adding funds to your prepaid card. 

  • Purchase a pre-loaded card
  • Set up direct deposit to the card
  • Bring cash or check to a retail store to add to the card
  • Transfer money from a bank account to the card
  • Deposit a check electronically to the prepaid card’s mobile application

Unfortunately most prepaid cards require you to pay a reloading fee, so try to combine and minimize your reloading to decrease costs. 

Using funds

Once there are funds loaded onto your prepaid card, you can begin accessing those funds. 

  • Swipe your card at any in-store POS
  • Type in your card number for online purchasing
  • Withdraw cash at an ATM

Just like adding funds, many prepaid card issuers attach fees to purchases and ATM withdrawals, so be sure you understand the terms of your prepaid card agreement before use.

How does a stored-value card differ from credit cards, debit cards, and charge cards?

While there are considerable similarities between credit cards, debit cards, charge cards, and stored-value or prepaid cards, the differences between them can have a big impact on your business spending. Let’s break down the characteristics of each card type

Card Type How it’s funded Fees Use limited by
Credit card Line of credit from card issuer Interest on each purchase, minimum payments required monthly Credit limit
Debit card Linked to a bank account Overdraft fees Amount of money in the bank account
Charge card Line of credit from card issuer Overdraft or carrying a balance Credit limit and balance paid in full each month
Stored-value or prepaid card Pre-loaded with funds Loading, purchase, monthly use fees Amount of money loaded onto the card

Credit cards are available to individuals and businesses contingent on credit scores, and can feature special rewards and perks catered to business needs or specific types of spending. A charge card is like a credit card—but must be paid in full each month. A debit card is linked directly to your bank account, and allows you the convenient spending of your own money. A stored-value card or prepaid card is loaded with your own money before use—but isn’t linked to any bank account.

Ready to get a business credit card? Follow these 4 steps to get started. 

How do you get a prepaid card?

One of the appealing features of a prepaid card is that they’re readily accessible. You can pick up prepaid cards at grocery stores and even gas stations. Your bank or credit union might offer a prepaid card option, or you can get one from your favorite retail location.

Why would my business use a stored-value card?

There is a wide range of uses for stored-value cards, including: 

  • Gift cards
  • Access to specific purposes, i.e. a cafeteria, laundry, transportation
  • Direct deposit for individuals without bank accounts
  • Controlled spend for travel, young users, etc. 
  • Access to services such as internet access or phone calling cards

Many businesses choose to use stored-value cards for employees who do not have bank accounts, or to provide money for bonuses or funding additional job perks (such as a prepaid card for gas). Some businesses may choose to provide employees with prepaid cards for their travel expenses to prevent overages or exposing their company card to fraud or loss.

Smarter spending for your business

We’re not here to tell you if prepaid cards are right for your business—only you know what your unique business needs are. This breakdown of prepaid cards should help you make an informed decision about using prepaid cards for travel expenses, employee perks, or employees without bank accounts. Choose the financial tools that will help your business spend smarter.

Divvy is the perfect union of corporate card and expense software that allows you to control your spend and access the capital your business needs. Learn more about Divvy Credit.

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