A business credit card and business line of credit are both useful for covering short-term expenses. Each has a revolving credit limit, allowing you to make additional purchases or draw funds as you pay down your balance, but there are some differences that will determine which is best for your business:
- A credit card might be a better fit if you regularly need to make smaller purchases directly with the card or card number.
- A line of credit could be a better choice if you need funds deposited to your bank account to cover large or less frequent expenses.
Business Credit Card | Business Line of Credit | |
---|---|---|
Typical Loan Amount | $5,000 to $100,000 | $5,000 to $500,000 |
Typical Annual Percentage Rate (APR) | 20% to 30% | 8% to 30% |
Typical Repayment Term | Minimum payments until paid in full | Up to 24 months |
Typical Repayment Schedule | Monthly | Weekly, monthly |
Funding Speed | 7 to 10 days to receive card | 1 to 4 days |
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When To Choose a Business Credit Card vs Line of Credit
A credit card and line of credit can both be useful for emergencies and for providing working capital to cover regular business expenses. Because of differences in how they work, however, the best one for you will depend on the type, amount, and frequency of your business expenses. Consider the following scenarios to see which might be better suited for your needs.
Rates, Fees & Qualification Requirements: Business Credit Card vs Business Line of Credit
The exact criteria for eligibility and the amount of fees involved will vary among lenders. It will also be determined by what loan terms you’re looking for. We’ve listed typical qualification requirements and fees below.
How a Small Business Credit Card Works
With a small business credit card, you’re issued a revolving credit line. You can make purchases directly with the card up to your credit limit. As you pay down the balance, you can continue to make additional purchases.
Many business owners only get one or two credit cards at a time. If you’re thinking about getting more, we recommend checking out our guide on credit card stacking to figure out the best order in which to apply for the cards:
- You apply for and get approved for the credit card: Applying for a credit card can usually be done online in a matter of minutes. Approvals can sometimes be instant or take several days if additional documentation or verifications are required.
- You receive the card in the mail: Once you’re approved, you’ll typically need to wait 7 to 10 days to receive the physical card in the mail. Some credit card issuers may provide a temporary card number so that you can use the account before receiving the physical card.
- You use the card to make a purchase: Once you receive the physical card in the mail, you can make online purchases using the account number, or by swiping or tapping the card at a physical store.
- You’re issued a statement with your minimum required payment amount: Statements are typically issued on a monthly basis and will show your account activity along with the required minimum payment amount. Minimum payments are often calculated as a percentage of your outstanding balance.
Pros & Cons of a Credit Card
PROS | CONS |
---|---|
Easier to get compared to many other financing options | High APRs, making it expensive for long-term expenses |
Rewards programs are common and can reduce the effective cost of business expenses | Requires a vendor to accept payment with a physical card or account number |
Commonly offers purchase protection and extended warranty benefits | Credit limits tend to be lower than other types of loans |
How a Small Business Line of Credit Works
With a small business line of credit, you can draw funds on a revolving basis up to your credit limit. Funds can be deposited into your bank account, at which point you can then use them to pay business expenses.
Below, we’ve summarized how a small business line of credit works. For more details on each step, you can view our guide on what a small business line of credit is:
- You apply for and get approved for a line of credit: Most providers allow you to submit an online application. This is something that can usually be done within 10 to 20 minutes. Expect to be asked for supporting documentation on your business finances. Approvals can often occur within 24 to 72 hours.
- Your online account is established: Once you’ve been approved for the line of credit, you’ll be given instructions on how to access your account. Most business owners opt for online access for ease of use and the ability to view the account status quickly. Part of the setup process will require you to designate an account where funds drawn can be deposited.
- You draw funds from the line of credit: When you need funds, you can make a draw against the line and have funds deposited to the bank account you’ve designated.
- You’re issued a statement with your minimum required payment amount: Depending on the terms of your loan, you’ll be issued statements showing your account activity and the minimum required payment.
Pros & Cons of a Business Line of Credit
PROS | CONS |
---|---|
Lower interest rates compared to business credit cards | Can be more difficult to qualify for |
Faster funding speed than a credit card | You do not earn rewards for your purchases |
Higher credit limits are available | Purchases made with funds do not carry any additional purchase protections |
Getting Both a Small Business Credit Card & Business Line of Credit
It’s possible to get business credit cards and business lines of credit. If you can manage the use of these financing options responsibly, you can get the best of both worlds. You should apply for the one most important to you first, as having too much credit opened in a short period can sometimes make it difficult to get approved for additional loans.
Some benefits of having both a business credit card and line of credit include:
- You can improve your credit scores: The more available credit you have, the easier it is to maintain a low credit utilization ratio, which is a key factor in your credit score. Learn more about this in our article on business credit score.
- You’ll have more payment flexibility: Since monthly payments are calculated differently for a credit card and line of credit, having both can help you better manage your business cash flow. You’ll also be able to choose the payment method best suited for different types of purchases.
To improve your chances of getting approved for either a credit card or line of credit, you can use the tips we mention in our guide on how to get a small business loan.
Bottom Line
Although a business credit card and line of credit have similarities and can both be used for short-term expenses, the types of purchases you make will dictate the best option for you. Credit cards generally are better suited for daily, smaller expenses. Meanwhile, a business line of credit can often be a good option for larger expenses.