Business Credit Card vs Business Line of Credit: What’s Better?
This article is part of a larger series onBusiness Financing.
Both credit cards and lines of credit are short-term, revolving financing options used by small businesses to access working capital. Which option is better? It truly depends on your business needs, how often you plan to make purchases, how much you need to spend and, ultimately, how quickly you can repay those borrowed funds.
When to Use a Business Credit Card or Business Line of Credit
Both business lines of credit and business credit cards offer the ability to borrow funds to support your business. While both provide needed access to capital, there are best practices for using each:
- 商业信用卡:These are an excellent way to manage employee expenses and smaller operational expenses or to purchase items that require a card number for payment. Also, if your business is a startup that has yet to record significant revenue, a business credit card may be the only way to support it.
- Business lines of credit:These are a great way to manage seasonal variations in cash flow, order larger amounts of inventory in advance of busier times of the year and purchase larger one-time expenses that can be paid off relatively quickly.
Business owners seeking to finance a one-time, large investment should consider applying for a Small Business Administration (SBA) loan or anequipment loan. Interest rates for both types of loans are much lower than credit cards and unsecured lines of credit. Additionally, the repayment period for both types of loans is much longer—up to 25 years for sometypes of SBA loans.
Business Credit Card vs Business Line of Credit at a Glance
Credit Card |
Unsecured Line of Credit |
|
---|---|---|
Maximum Credit Limit |
Up to $50,000 |
Up to $250,000 |
Expected Annual Percentage Rate (APR) |
Up to 25% |
|
Repayment Terms |
Monthly |
Up to 24 months per draw |
Approval Time |
Up to two business days |
Same business day |
Funding Speed |
Up to 10 days to receive card |
Up to three business days |
Minimum Credit Score |
640 |
600 |
Time in Business |
None |
Six months |
Minimum Annual Revenue |
None |
$50,000 |
Best For |
Employee expenses, smaller operating purchases |
Working capital |
Business Credit Card vs Business Line of Credit: Qualifications
Credit Card |
Unsecured Line of Credit |
|
---|---|---|
Personal Credit Score |
At least 640 |
At least 600 |
Minimum Revenue |
No requirement |
At least $50,000 |
Time in Business |
No requirement |
At least 6 months |
Uniform Commercial Code (UCC) Filing |
N/A |
Often required |
Business credit cards traditionally have a higher minimum credit score threshold than business lines of credit. However, many business credit cards don’t have a revenue requirement and don’t require a business to be in operation for a specific length of time. Business credit card financing is based predominantly on the owner’s credit score, especially in the case of newer businesses or those that have very low annual revenues.
A business line of credit will require a UCC filing at the time of approval. This provides the lender with the ability to put a lien on your business assets should you fail to pay back what you borrow.
Business Credit Card vs Business Line of Credit: Costs
Credit Card |
Unsecured Line of Credit |
|
---|---|---|
APR |
12% to 25% |
|
Annual Fee |
Up to $600 |
Up to $100 |
Origination Fee |
None |
Up to 5% |
Draw Fee |
None |
Up to 1% |
信贷业务通常有更高nnual percentage rate (APR) compared to business credit cards. However, individuals with outstanding credit may be able to obtain a lower interest rate line of credit. Fees can vary widely by lender with both business credit cards and lines of credit. While annual fees are typically minimal with lines of credit, there may be origination fees and a draw fee, depending on the lender. Many small business credit cards have no annual fee; however, cards with perks and rewards can carry higher annual fees. The total cost of borrowing should be a primary consideration when shopping around for both thebest business credit cardsand thebest small business lines of credit.
Business Credit Card vs Business Line of Credit: Access to Capital
Credit Card |
Unsecured Line of Credit |
|
---|---|---|
Maximum Credit Limit |
Up to $50,000 |
Up to $250,000 |
Approval Time |
Up to two days |
Same business day |
Funding Speed |
Up to 10 days to get card |
Up to three business days |
Unsecured business lines of credit allow access of up to $250,000, with the largest limits set aside for businesses with higher annual revenues. Most lines of credit will have limits in the $50,000 to $100,000 range. By comparison, credit card limits typically don’t exceed $50,000. Both credit cards and unsecured lines of credit feature fast approvals. Lines of credit fund within three business days, but credit cards take a little longer, as the card needs to be mailed to you.
When it comes to accessing funds after initial funding, there are minor differences. When it comes to using a line of credit, you can draw from the line as needed and deposit as cash or transfer directly into your bank account. Credit cards are typically used for individual purchases. However, both offer convenience and flexibility to use as needed.
Business Credit Card vs Business Line of Credit: Repayment Terms
Credit Card |
Unsecured Line of Credit |
|
---|---|---|
Repayment Frequency |
Monthly |
Weekly or monthly |
Minimum Payments |
高达4%的英国航空公司lance owed or up to $50, whichever is greater |
Percentage of principal plus interest or fixed amount based on terms to repay |
Time to Repay |
Until balanced is paid off |
Up to 24 months |
Business credit cards have monthly repayment terms, with the minimum payment being a small percentage of the owed balance once a minimum threshold is met. This is somewhat different from the repayment terms on a business line of credit, which are either weekly or monthly. Depending on the lender, you may have a fixed amount due based on the owed balance or a percentage of the principal plus interest accrued.
The other difference lies in the time you have to repay what you owe. With an unsecured line of credit, you typically have no more than 24 months to repay the advance, with most advances being due within one year. With a credit card, you continue to make payments as long as there’s a balance owed on the card.
Business Credit Card vs Line of Credit: How to Apply
Applying for a credit card and line of credit is as easy as entering your business and personal information online. Typically, you’ll receive an approval decision within 24 hours. For a line of credit, you’ll receive your funds within one to three days compared to the seven to 10 days it takes to receive a business credit card.
If you apply for a business line of credit, the online process will be much easier as you only need to provide personal information, your business’s information, and your bank statements so the lender can evaluate your ability to make loan payments. Applying for a business credit card online works the same way.
If you’ve been in business for one year, have a credit score above 600, and generate at least $100,000 in annual revenue, you may qualify for a line of credit from OnDeck. There’s no cost or obligation to draw funds if you qualify, and you pay only for the funds you actually use.
If you’re looking for the right card to apply for, we recommended the Chase Ink Business Cash® card. You can apply online by filling out a basic application containing both business and personal information, and you could be approved the same day you apply. After approval, you’ll receive your card in the mail within seven to 10 days.
Benefits of Having Both a Business Credit Card & a Line of Credit
Business credit cards and lines of credit both have unique benefits that are helpful to business owners. If your business makes smaller purchases online while managing larger seasonal inventory fluctuations and cash flow variations, having both a line of credit and a credit card makes sense.
Some benefits of having both a business credit card as well as a line of credit include:
- Increased business credit:One factor all credit monitoring agencies review is your business’s credit utilization ratio. Provided you can keep your owed balances in check, having both a business credit card and business line of credit increases your business’s total credit limit and lowers your credit utilization ratio. Both of these factors will positively impact your business credit report and scores.
- Greater payment flexibility:Many business credit cards offer cash back and rewards for the money you spend on the card. This can work well for day-to-day purchases, orders where a credit card is needed for payment, or smaller operational expenses. A line of credit can be used as cash and to write checks, which you can’t do with a business credit card. This gives you additional flexibility to manage your business cash flow.
Pros & Cons of a Business Line of Credit
A business line of credit can benefit your business because you can receive high credit limits up to $500,000 in the form of cash while having a credit score as low as 600. However, in contrast to credit cards, business lines of credit carry interest rates up to 50%, require that you have $100,000 in annual revenue, and are repaid like a loan.
PROS | CONS |
---|---|
Access to credit | Advances have shorter repayment periods than a credit card |
Options available for some subprime borrowers | Interest rates for subprime borrowers can be very high |
Higher credit limits than with credit cards | 更新的或规模较小的企业可能没有t be able to qualify |
Pros & Cons of a Business Credit Card
Business credit cards give business owners and their employees access to a credit line that can be used as needed. Business credit cards are especially beneficial for small businesses that have low annual revenues and can’t qualify for a line of credit. Expenditures should be paid off monthly, as the outstanding balance is charged interest until repaid.
PROS | CONS |
---|---|
Easy access to credit | Lower limits compared to lines of credit |
Funding for newer and smaller businesses | Potential for fees for late payment and for maintaining the card annually |
Inexpensive short-term financing option if payments are in full | Can be expensive if balances are not paid off quickly |
Bottom Line
A small business credit card and a business line of credit are both good short-term financing options that should be used for different reasons. If you can obtain both as part of your financing arsenal, you’ll get added flexibility and can improve your business credit, provided you make your payments on time. If you need to choose one option, look at how your business operates, what your specific needs are, and whether a line of credit or credit card is a better fit for your business.