Business Line of Credit Vs. Credit Cards

There are many solutions available to business owners who need access to fast capital. Two popular options are, business lines of credit and business credit cards, both come with advantages and disadvantages. People are very familiar with using credit cards and building up points, so it is the first financial tool they think of for fast financing. But, depending on your situation, businesses may also benefit from a line of credit.

There’s a big difference between the two tools. Business credit cards have little regulations, so they tend to have higher fees and interest rates. Whereas, a line of credit usually offers much lower interest rates for credit-worthy borrowers. The savings on interest could easily be 20% or greater compared to using a credit card. Besides the higher interest rates, the lack of regulations for business credit cards allow creditors to increase interest at will, leaving a company in a vulnerable position especially if they have heavy credit card use and do not pay off their balance in full every month.

Most business credit cards analyze the personal credit of the applicant as well. So, business credit cards will reflect on personal credit and impact the credit score if late payments are made and balances are high. Unlike most credit cards, with business cards the creditor doesn’t have to use the card holder’s payment towards the highest interest rate portions of the debt. When a business credit card balance has both low and high rate portions due to varied transfers any payments will go towards the lower rate portion first allowing the creditor to make more profits.

Take a closer look:

Business credit card

Many business credit cards are easier to qualify for than business loans. In addition, business cards offer higher limits and better rewards than personal cards, owners can use them to finance operations or unexpected expenses, and many will report to the business credit bureaus – helping to build business credit profiles. Here’s what you should know about business credit cards:

  • Cash advances can be very expensive.
  • Interest rates are often very high.
  • Some cards require the user pays and annual fee.
  • Many cards require a personal guarantor.
  • Some offer a promotional interest free period.

Line of credit

With a line of credit your company qualifies for a determined loan quantity and can deduct from that amount as needed. They only pay interest on the portion of the line that has been used. Here’s what you should know about business lines of credit:

  • There are no perks/rewards.
  • They can be secured or unsecured – may require collateral.
  • Newer businesses might only qualify for a small line.
  • Offer lower interest rates than credit cards.
  • Can use to pay creditors who don’t accept credit cards.
  • Pay back in a lump sum or on a payment schedule.
  • No cash advance fees.

Depending our your needs and how you will be using the credit, each option offers a number of advantages with a few set backs. Many business owners use both options – they keep a line of credit available cash advances but have a credit card on hand for fast purchases. Always make sure to ask the creditor who they report to before opening the account.


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