With a business credit card and business line of credit, you can make purchases up to the credit limit your lender has issued to you. While both are typically most useful for short-term financing, they have differences when it comes to costs and methods by which you can access the credit limit you’re given. In general, we recommend the following use cases:
- Business credit card: Best for small to medium purchases you intend on paying off in under 90 days
- Business line of credit: Best for being able to get funds deposited to your bank account to cover costs you plan on paying off within one to three years
| 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 |
| For Our Recommended Providers | Visit Chase Ink Business Unlimited® | Visit Bluevine |
- Rates, Fees & Qualification Requirements: Business Credit Card vs Business Line of Credit
- How Small Business Credit Cards vs Small Business Credit Lines Work
- Pros & Cons of Business Credit Cards & Credit Lines
- When to Choose a Business Credit Card vs Line of Credit
- Getting Both a Small Business Credit Card & Business Line of Credit
- Frequently Asked Questions (FAQs)
- Bottom Line
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.
| Business Credit Card | Business Line of Credit | |
|---|---|---|
| Credit Score | 640-plus | 600-plus |
| Time in Business | None | 6 months |
| Annual Revenue | None | $100,000 |
When it comes to getting qualified for a business line of credit or credit card, lenders are primarily concerned with your ability to repay the loan and how you’ve previously managed your debt obligations:
- Credit score: Your personal and business credit scores can be evaluated to determine your likelihood of defaulting on the loan. Our guide on bad credit scores goes over how you can improve your credit. You can also check out our article on business credit score to see how lenders may evaluate your credit history.
- Time in business: As a company with less than two years’ time in business, you’ll be considered a startup by most lenders. Since startups have a high failure rate, it will be riskier for a provider to loan you funds. As a result, you may not qualify for the lowest advertised rates.
- Annual revenue: Your income is a key factor in determining your ability to repay the loan. For some lenders, the minimum required amount will vary depending on your debt payments. Other lenders will require a minimum dollar amount regardless of how much debt you are carrying.
| Business Credit Card | Business Line of Credit | |
|---|---|---|
| APR | 20% to 30% | 8% to 30% |
| Origination Fees | None | 0% to 3% of loan amount |
| Closing Costs | None | Varies |
| Draw Fees | None | May apply |
| Annual Fees | $0 to $600-plus | $0 to $300-plus |
Rates and fees for a loan can vary greatly among lenders. While we’ve listed common types of expenses associated with getting either a credit card or line or credit, you should review the terms and conditions of your specific loan to see if they all apply.
- APR: In addition to the interest rate, the APR is an important figure that is designed to show the total costs associated with a loan. In other words, two lenders may offer the same interest rate, but the provider with a lower APR is likely to have fewer costs associated with getting the loan.
- Origination fees: In exchange for rendering its services in providing you with a loan, some lenders may charge an origination fee.
- Closing costs: Closing costs may include fees for any third-party services the lender paid for as part of your loan application process. Some examples can include credit report fees and appraisal fees if you are pledging collateral as part of the loan.
- Draw fees: On a line of credit, draw fees can be charged for each individual draw taken, or for draws below a certain dollar amount.
- Annual fees: Some credit cards and lines of credit can charge an annual fee. This is often used by lenders to cover the costs associated with the ongoing maintenance of your account.
How Small Business Credit Cards vs Small Business Credit Lines Work
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.
Meanwhile, with a small business line of credit, you have the ability to 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 it to pay business expenses.
Process of getting a small business credit card
- 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 and in-person purchases by swiping or tapping the card at a store.
- You’re issued a statement with your minimum required payment amount. Statements are typically issued monthly 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.
Process of getting a small business line of credit
- You apply for and get approved for a line of credit. Most lenders allow you to submit an online application to get a small business credit line, 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 approved, 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 quickly view the account status. 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 Business Credit Cards & Credit Lines
Small business credit cards
| Pros | Cons |
|---|---|
| Have more flexible qualification requirements, making it easier to get approved | Have interest rates that are typically much higher than credit lines |
| Are a simpler payment method for smaller purchases | Have no cost-effective method to convert credit line into cash |
| Typically offer purchase protections and rewards programs | Have credit limits that tend to be lower compared with credit lines |
Pros
- Qualification requirements: It’s possible to get some business credit cards as a startup with no prior history, low business income, or no business credit score. This is because business credit cards may simply look at your personal credit score with a personal guarantee requirement, something that would allow the lender to pursue your personal assets in the event your company defaults on payments.
- Simple payment method: You can easily use your business credit card to make payments in person by swiping or tapping your card with a vendor’s payment processor. Online payments can be done just as easily by providing your credit card account number.
- Purchase protection and rewards: Many business credit cards carry purchase protections to cover you in the event of theft or accidental damage of products purchased with the account. Banks may also issue rewards programs, something that can effectively reduce your business expenses.
Cons
- High rates: Interest rates tend to be high on credit cards, with annual percentage rates (APRs) often in the 20% to 30% range. This makes it less ideal for financing purchases long-term.
- Inability to convert to cash: Purchases must be made directly with credit cards. With the exception of high-interest-rate cash advances, there is no cost-effective way of being able to use your credit card account to deposit funds into your bank account.
- Lower credit limits: Credit limits generally run from $5,000 to $100,000, which would preclude the possibility of using it for large business expenses.
Small business credit lines
| Pros | Cons |
|---|---|
| Have the ability to convert available credit into cash | Can be more costly; challenging to make smaller or recurring purchases |
| Offer higher credit limits allow for financing larger expenses | Tend to have stricter qualification requirements and paperwork for approvals |
| Have lower rates, making them ideal for financing purchases greater than 3 months | Have less robust purchase protections compared with business credit cards |
Pros
- Access to cash: Credit lines allow you to draw funds and have them deposited into a bank account of your choice. These funds can then be used for any business-related purpose.
- High credit limits: Credit limits can be as high as $500,000 or more, making it a good option for financing large business purchases, such as vehicles or other equipment.
- Low rates: The best rates generally hover around 8%, making credit lines less expensive to carry a balance and finance expenses over a longer period.
Cons
- Not ideal for small purchases: Some business credit lines have a minimum amount that must be drawn. They may also have a per-draw fee, making it a less economical solution for covering small recurring purchases.
- Strict qualifications: Requirements for credit scores, time in business, and revenue are typically much higher for business credit lines when compared with credit cards. Lenders will also typically require much more paperwork to support your ability to repay the loan.
- Fewer purchase protections: Funds deposited to your bank account from your business line of credit won’t normally carry purchase protections that would otherwise be present on a business credit card. Common examples include protections against theft and accidental damage.
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. Due to 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.
- You make purchases directly with the card: With a business credit card, you can make purchases using the account number or the physical credit card. This differs from a line of credit, where funds are usually deposited to your bank account.
- You have regular, recurring expenses: Credit cards do not have a minimum purchase amount and many have tools for categorizing and managing employee accounts and expenses.
- You have small or medium-sized expenses: Credit limits typically are smaller than what you can get on a business line of credit. This makes a credit card more ideal for smaller purchases.
- You want to earn rewards on your purchases: Many credit cards have a rewards program allowing you to earn rewards on your purchases. This can be in the form of cash back or points that can be redeemed for things like travel, gift cards, or other merchandise.
- You want some type of protection for your purchases: Credit cards often offer additional protections for many types of purchases. Some examples include extended warranties and reimbursement for theft or accidental damage.
See our top-recommended small business credit cards for options.
- You have larger, less frequent expenses: A business line of credit typically has a lower interest rate than a credit card, which makes it more ideal to cover purchases that you are unable to pay for in full.
- You can pay off the loan quickly: Many lines of credit have a short repayment term of between six and 24 months, and you’ll usually have to make a fixed minimum payment amount.
- You prefer to have funds deposited to your bank account: Funds drawn from a business line of credit can be deposited to your bank account and used for working capital and other daily business expenses. Our picks for the best working capital loans contain several business lines of credit.
Check out our list of the leading business lines of credit to find a lender.
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.
Getting Both a Small Business Credit Card & Business Line of Credit
It’s possible to get both a business credit card and a business line of credit. If you can manage the use of these financing options responsibly, you can get the best of both worlds. Some benefits of having both 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.
- 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.
Frequently Asked Questions (FAQs)
Is it easier to get a business credit card or business line of credit?
It’s typically easier to get approved for a business credit card. Business lines of credit have stricter requirements for things like time in business and revenue earned.
Can I withdraw cash from both a business credit card and business credit line?
While it’s possible to turn your available credit limit into cash, business credit cards require you to do a cash advance, which typically carries an APR of 30% or more. Business credit lines carry much lower rates, often less than 10%.
Is it better to use a business credit card or business line of credit?
This depends on the types of expenses you want to cover. Business credit cards are generally better for smaller recurring charges, while business credit lines are good for larger expenses you want to finance for a longer period.
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 are generally better suited for daily, smaller expenses. A business line of credit, on the other hand, can often be a good option for larger expenses.
