Business credit cards and lines of credit are short-term financing options used by small businesses to access working capital for different purposes. A business credit card is a financing option that’s used to make business-related purchases. A business line of credit gives business owners access to funds that can be drawn on as needed.
OnDeck offers a small business line of credit of up to $100,000 for borrowers with personal credit scores of 600+. There’s no cost to set up your line of credit, no obligation to draw funds if you qualify, and you pay only for the funds you actually use. You can get approved online within 24 hours.
When to Use a Business Credit Card
Business credit cards are an excellent way to manage employee expenses, float business expenses, earn rewards, and access capital if your business is a startup that has yet to record significant revenue. Limits are typically up to $50,000, with monthly interest charges on the outstanding balance.
When to Use a Business Line of Credit
A business line of credit is a short-term, flexible financing option that’s best used when borrowing needs vary, when you need access to flexible payment options, and if you have a low personal credit score. Lines of credit give business owners access to funds typically up to $100,000 that can be drawn as needed.
When to Use an Alternative to a Business Credit Card or Business Line of Credit
If you’re a business owner looking to finance a one-time, large investment, it may be best to consider using a business term loan. For example, if you need a large sum of working capital, an SBA Loan can help you access necessary financing. SBA Loans are a great fit for long-term financing and typically have the best rates (5% to 10%) and longest terms (10 years) of all small business funding options.
Business Credit Card vs Business Line of Credit at a Glance
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How We Evaluated Business Credit Card vs Line of Credit
Business lines of credit and business credit cards can come with a variety of qualifications and a range of APRs and fees. The best option for you is likely going to be determined by your personal and business situation, including how you will use the funds.
When deciding which financing options are the best overall and the best in their respective categories, we considered:
- Max Credit Limit: The maximum amount of capital you can access with a business line of credit versus a credit card.
- Expected APR: The expected ongoing interest rate charged on purchases and balance transfers.
- Fees and Rewards: Any potential fees, introductory rewards, and ongoing rewards associated with a specific card.
- Qualifications: Requirements financing companies look for to qualify you for a product.
- Repayment Terms: How a debt obligation is repaid and the length of the repayment period.
- Employee Usage: The ability to issue specific cards throughout your company to employees.
- Best Uses: How you plan to use the funds and the best way to maximize your financing benefits.
The choice between a business credit card and business line of credit will typically depend on your spending needs. A business credit card is an excellent option if you want to distribute cards throughout your company to specific employees. A business line of credit, on the other hand, is best for unexpected working capital needs and for those with low personal credit scores (below 640).
OnDeck offers a small business line of credit of up to $100,000 for business owners with personal credit scores of 600+. You can apply online and get approved within 24 hours.
Business Credit Card vs Line of Credit: Costs
The costs of a business line of credit and business credit card generally include the expected APR, annual fee, and, for a line of credit, a origination and draw fee. You will typically incur interest between 14% and 25% on a business credit card, and some cards have annual fees of up to $500. In comparison, a business line of credit carries interest rates between 30% and 50%, but has no annual fees.
Business Line of Credit Costs
When it comes to the costs, prime borrowers with a personal credit score of 700+ are able to get an effective line of credit APR around 20%. However, the typical range of APRs depends on the monthly fee and the repayment schedule. For a line of credit, the higher the fee and the longer the repayment, the higher the APR.
The typical costs of a business line of credit are:
- APR: 30% to 50% (prime borrowers around 20%)
- Annual Fee: None
- Origination Fee: 1% to 5%
- Draw Fee: Typically around 1%
Some providers, however, such as OnDeck, include the origination fee within the APR and is taken out of your line of credit upfront. However, while APRs are an industry standard and useful for comparing lending products like mortgages, it’s important to consider the total cost of borrowing when you’re considering a short-term loan.
Business Credit Card Costs
Business credit cards usually have APRs between 14% and 25%, and annual fees up to $500. Some business credit cards have an annual fee because, unlike a line of credit, they sometimes offer a rewards program to help cardholders earn cash back on their purchases.
The costs of a business credit card are:
- Expected APR: 14% to 25%
- Annual Fee: $0 to $500 per card
Chase, however, doesn’t charge an annual fee for their Chase Ink Business Cash℠ card and offers a 0% introductory APR for the first 12 months. For small business owners who want to earn various rewards for travel and other expenses, the Ink Cash card offers 1% to 5% back on eligible purchases and a $500 cash back introductory bonus.
Business Credit Card vs Line of Credit: Access to Capital
The major difference between a business credit card and a line of credit is their access to capital, due to two reasons. The first is that a line of credit can have a maximum credit limit up to $500,000, and a business credit card has a maximum limit of $50,000+. However, most of our readers typically get limits up to $30,000. The second is that when you draw from a line of credit, those funds can be deposited as cash into your account.
Business Line of Credit Access to Capital
Access to capital is a great reason to use a line of credit. A line of credit can be used as credit or can be used as a cash advance up to 100% of your credit line. This cash can then be used to write checks or pay vendors who might not accept credit. You can think of a business line of credit like a fast business loan that’s on-demand when you need it.
With a business line of credit, the amount of capital you can have access to is:
- Max Credit Limit: $500,000, but typically around $30,000
- Time to Approval: Less than 10 minutes
- Time to Funding: One to three days
While there are much larger amounts available, most of the small businesses we are a resource to only get about $30,000. However, once you receive your credit limit, you can work on increasing your line of credit through several tactics. OnDeck only offers a line of credit of up to $100,000, but with qualifications that are easier than a traditional bank line of credit. You can get approved and have access to capital in as quickly as one business day.
Business Credit Card Access to Capital
Conversely, a credit card only offers a limited cash advance amount that’s typically charged at your APR rate plus ~7%. Similar to a line of credit, a business owner can use some or all of that credit limit as needed. However, a credit card is usually only used for credit purchases unless a cash advance is allowed, which typically is expensive.
With a business credit card, the amount of capital you can have access to is:
- Max Credit Limit: $50,000+
- Time to Approval: Same day
- Time to Funding: Seven to 10+ days to receive card
If you already have a business line of credit and want to start earning rewards through a business credit card, apply with Chase today. The Chase Ink Business Cash℠ card is an excellent option to earn cash back rewards between 1% and 5%.
Business Credit Card vs Line of Credit: Repayment Terms
The repayment schedule of a business line of credit versus a credit card is also a key difference. For example, a business credit card requires minimum monthly payments. In contrast, a line of credit is typically treated more like a loan and has a fixed repayment schedule. This makes a business credit card more flexible in terms of repayment.
Business Line of Credit Repayment Terms
A business line of credit is treated more like a loan and typically has a fixed repayment schedule less than 12 months. Even though you can use a portion of your line of credit, often each draw is treated as a separate “loan,” which is repaid evenly over that period of six to 12 months. There is no option to float expenses beyond that timeline or to make minimum interest-only payments, which traditional banks allow.
However, OnDeck offers lines of credit with repayment terms of three to 36 months that are repaid on a weekly basis. There are lines of credit that can be paid back monthly, but the most common type of repayment schedule is typically daily or weekly. OnDeck’s longer repayment terms can help you manage cash flow, which makes the total cost of borrowing competitive with business credit cards.
Business Credit Card Repayment Terms
Since a business line of credit is usually paid back daily or weekly, it makes a business credit card more flexible in terms of repayment. Instead of paying it back like a “loan,” every month you pay down your total credit balance. However, it can get really expensive if you don’t have a realistic plan of how to pay back the principal quickly. Any amount of your balance that’s not paid off within a month is charged interest.
The repayment terms of a business credit card are:
- Repayment Terms: Monthly payments
- Monthly Minimum Payments: 2% to 4% of the outstanding amount
While a monthly fee is charged on outstanding business credit card balances, a cardholder is only required to make monthly minimum payments to avoid any additional late fees. However, there are some cards, called business charge cards, that require balances to be repaid in full every 15 to 30 days.
Business Credit Card vs Line Credit: Qualifications
Typically, if you are a business owner with a low personal credit score (below 640), you may be better off with a line of credit because it only requires a personal credit score of 600+. In contrast to that, if you want to qualify for a business credit card, you will typically need a personal credit score of 640+.
Business Line of Credit Qualifications
The minimum requirements for a business line of credit include your personal credit score, time in business, and required annual revenue. The personal credit score requirements with a line of credit (600+) are typically lower than that of a business credit card (640+), making it an excellent option for those with poor credit.
The qualification requirements of a line of credit typically are:
- Personal Credit Score: 600+ (check yours for free)
- Time in Business: One+ year
- Revenue Required: $100,000 in annual revenues
Online providers like OnDeck can be fairly flexible in regard to their qualification requirements. In fact, they often don’t require collateral and can approve businesses once they’ve been in business for at least one year. Traditional banks, on the other hand, typically offer higher credit limits because they might require you to secure your line of credit with personal assets or collateral.
Business Credit Card Qualifications
In contrast to a line of credit, a business credit card is a good option if your business has little or no revenue. If your business is new or small, a business credit card might be the only option because it may not meet the $100,000 in annual revenue requirement of a line of credit.
The qualification requirements of a credit card typically are:
- Personal Credit Score: 640+ (check yours for free)
- Time in Business: No requirement
- Revenue Required: No requirement
It’s important to use accurate information on your application, even if you’re a brand-new business or a startup. You may be asked to include both personal and business income on the application. Include them both and be honest. Saying you have $0 business revenue is not necessarily something that will keep you from getting a business credit card. If you have a good personal credit score, you’re more likely than not to qualify.
Business Credit Card vs Line of Credit: Ease of Use
One major difference when it comes to using a credit card or line of credit is that a line of credit is something you can draw from as needed and deposit as cash into your bank account. However, both financing options are revolving accounts with limits that can be reused as it’s paid off.
Business Line of Credit Ease of Use
Once you’ve been approved, you can typically access your funds at any time. You can either have your funds deposited as cash into your account or sometimes use a card that is connected to your money. You will only have to repay the amount that you use and aren’t required to use all of the credit line.
Business Credit Card Ease of Use
Like a line of credit, a business owner can use some or all of that credit limit as needed. Using your credit card is as easy as swiping your business credit card at a store that accepts electronic payments or entering your card information online. The amount you borrow is available to reuse again once you repay that amount.
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 will 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.
How to Apply for a Business Line of Credit
You can apply for a business line of credit online through several different providers or through a bank. Generally, the online process will be much easier as you only need to provide personal information, your business’ information, and your bank statements so they can evaluate your ability to make loan payments.
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.
How to Apply for a Business Credit Card
You can apply for a small business credit card online, entering your business and personal information. Typically, you will receive an approval decision within 24 hours and your credit card between seven and 10 days. You can search and compare the best business credit cards through our credit card marketplace.
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 instantly. Once you’re approved, you’ll receive your card in the mail within seven to 10 days.
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 a credit card, they carry interest rates up to 50%, require that you have $100,000 in annual revenue, and are repaid like a loan.
Pros of a Business Line of Credit
The pros of a business line of credit are:
- Provides Access to Credit: When you need to write checks or access cash, a business line of credit is a great option. It gives you the flexibility of accessing the working capital funds you need on demand.
- Available to Businesses with Lower Credit: To get a business credit card, you typically need to have a credit score of at least 640 to get an unsecured card. With line of credit providers such as OnDeck, your credit score can be as low as 600. This means credit is available to even more businesses.
- Substantial Maximum Limits: The maximum limit for a line of credit is much higher than with a business credit card. While you can expect a limit of up to $50,000 for a business credit card, with a line of credit your limit could be as high as $500,000, depending on the provider.
Cons of a Business Line of Credit
The cons of a business line of credit are:
- Strict Repayment Schedule: With a business credit card, you can potentially float your balances during periods of tight cash flow. This is because there are no predetermined principal repayment schedules. With a line of credit, the repayment acts more like a loan. Each advance will be paid off over a period of six to 12 months, depending on the provider.
- High Interest and Fees: When you use a business credit card, you can potentially avoid interest charges if you pay your balance in full. While there are typically annual fees, these can also potentially be offset by rewards and programs. A line of credit often doesn’t offer these same perks, as you’re charged interest the entire time the balance is outstanding.
- Smaller Businesses May Not Qualify: Most business line of credit providers require their borrowers to meet a minimum annual revenue threshold. This means very small business (less than $100,000 in annual revenues) might not be able to qualify for a line of credit. Instead, you can consider new business credit cards or credit cards for startups.
Pros & Cons of a Business Credit Card
A business credit card provides business owners and their employees with access to a credit line that can be used as needed. They’re 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 of Business Credit Cards
The pros of business credit cards are:
- Easy Access to Credit: It is very easy to access credit using a business credit card from vendors who accept credit card payments. It is also a good way to give your employees access to credit when they are traveling or otherwise on the go.
- Inexpensive Short-Term Financing: Business credit cards are an effective way of bridging short-term working capital needs for a short, 30-day period. If you pay the card off every month, you can benefit from rewards and free up your cash without incurring interest charges.
- Funding for Very Small Business: With a business credit card, even microbusinesses can benefit from financing. This is because the annual revenue requirements are typically low, meaning even businesses with annual revenues of less than $100,000 per year can use business credit cards.
Cons of Business Credit Cards
The cons of business credit cards are:
- Limited Accessibility to Cash: While business credit cards make access to credit from vendors who accept credit card payments easy, it’s not as easy if you need to pay with check or cash. Cash advances are typically very expensive and limited to an amount less than the card limit.
- Potential Annual Fees: One of the reasons business owners might choose a business credit card is to take advantage of rewards and other benefits. This is a great card use, as long as you make sure the annual fees you’re charged don’t offset any rewards you earn.
- Can Create a Cash Trap: If you aren’t diligent about paying off your credit balances each month, business credit cards can create a cash trap. You’ll pay the APR on the outstanding balance each month, which can quickly add up. To avoid expensive interest charges, you should pay off your business credit card balance every month.
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. Since it’s possible to find business credit cards and lines of credit without any annual fees, there’s no downside to having both. This gives you greater access to capital and lets you take advantage of multiple product-specific benefits.
FitSmallBusiness.com sat down with Ty Kiisel, Editor at OnDeck, to discuss the benefits of using both options. Kiisel said:
“Roughly 65% of small business owners use business credit cards regularly, but there are situations when a credit card won’t meet your needs. In addition to your credit card, a business line of credit is a flexible financial tool for small business owners who occasionally need access to short-term capital.
Both are great sources of credit to fuel growth, capture additional ROI, or meet an unexpected business expense. They are valuable financial tools individually, but they also complement each other. If your business occasionally needs access to short-term capital, a line of credit, in addition to your business credit card, is a great choice.”
“Roughly 65% of small business owners use business credit cards regularly, but there are situations when a credit card won’t meet your needs. In addition to your credit card, a business line of credit is a flexible financial tool for small business owners who occasionally need access to short-term capital. A business line of credit and business credit card both remain popular ways small business owners can gain access to funds to meet short-term financing needs. The ability to access funds, make repayment, and access the funds again is very enticing to small business owners who have intermittent need for additional capital.
The three benefits of having both a business credit card as well as a line of credit are:
1. Increased Overall Business Credit
Your business credit score is a business-specific score that assesses the creditworthiness of your company. You typically have up to four major business credit scores, each of which uses their own business credit reporting to calculate your score. However, one of the factors that affects all your scores is your business’ credit limit and credit utilization ratio.
This is why having both a business credit card and business line of credit can help increase your business credit score. When you have both, it naturally increases your business’ total credit limit and lowers your credit utilization ratio (as long as you don’t tap into them too much). Both of these factors will positively affect your business credit reports and business credit scores.
2. Greater Payment Flexibility
A business credit card often offers you cash back and rewards for money you spend on the card. If you don’t need a large credit limit that a business line of credit provides, it may be best to stick with a credit card to earn rewards. However, a line of credit can be used as cash and to write checks, which you can’t do with a business credit card.
You can solve this problem by having both. This way, you can use your business line of credit to cover overhead, such as rent or payroll, and your business credit card to cover other costs, such as employee incidentals. The result is that you have the flexibility to pay for and earn rewards on your employees’ incidentals and still finance rent and other cash-required working capital expenses.
Payment Flexibility Provided by a Business Credit Card & Business Line of Credit
3. More Access to Capital
One of the downsides of relying only on a business credit card is that the credit limit is often lower than a business line of credit. This means that while you might be able to earn rewards when you use a credit card, you might soon hit the credit limit. If this is the case, it makes sense to have both a business credit card and line of credit.
If you need to pay for expenses using credit, you can use your business credit card up until the point you reach your limit. From there, you can rely on your line of credit to pay for the rest. Further, if you know you have a large expenditure that’ll exceed your business credit card limit, you can put the entire amount on your line of credit.
Also, if you know that you can pay for an expense using credit but will have to float it for a few months, it’s more cost effective to use a line of credit instead. Even though you’ll forgo some rewards, the line of credit repayment schedule is better than making minimum payments and getting charged a high APR until you can pay it off.
Frequently Asked Questions (FAQs) About Business Credit Cards & Lines of Credit
We covered a lot of different information about a business credit card versus a line of credit. Some questions are asked more often than others, and we address those here. If you have any other questions, please comment below or visit the Fit Small Business Forum, and we will provide an answer.
The most frequently asked questions about a business credit card vs line of credit are:
What Is a Business Line of Credit?
A business line of credit is a flexible financing option from a bank or private lender. A line of credit gives small business owners access to funds that can be drawn on as needed. Interest is charged only on the capital used (after funds are drawn) and not on the line of credit extended.
What Is a Business Credit Card?
A business credit card is tied to a business and used to make business-related purchases. A business credit card, like a consumer credit card, gives a person access to a credit line that can be used as needed. Expenses are to be paid off monthly and all outstanding expenses are charged monthly interest until repaid.
Can You Get a Business Credit Card with Bad Credit?
Business owners with low personal credit scores should consider a secured business credit card. A secured business credit card is backed by a deposit and acts like a normal business credit card. Business owners with poor credit or limited credit will find it easier to qualify for a secured credit card.
Bottom Line
A small business credit card and a business line of credit are both good short-term financing options. Since you can often find both of them without any fees, it never hurts to have both. This way, you have a higher total credit limit that you can rely on when you need to smooth out cash flow or take advantage of a sudden opportunity.
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 of up to $100,000. Apply online in minutes and know right away how much funding you can access.
Carol Krueger
Very interesting, thank you.