Small business loans and business credit cards are financing options businesses use to access working capital. When thinking about a small business loan vs. business credit card, remember loans are best for companies with $100,000+ in revenues with big one-time expenses, while credit cards are best for financing recurring expenses and managing employee spending.
Small Business Loan vs. Business Credit Card Comparison
|Short-Term Loan||SBA Loan||Business Credit Card|
|Maximum Credit Limit||$2k to $500k+||Up to $5 million||$10k to $50k+|
|Expected APR||10% to 50%+ fixed or variable||7.75% to 10.25% fixed or variable||14% to 25% variable|
|Annual fees||None||None||$0 to $450 per card|
|Origination fees||0% to 5% of the loan amount||0.5% to 3.5% of the loan amount||None|
|Repayment||3 to 36 months||Up to 25 years||No set repayment schedule|
|Introductory Rewards||None||None||$0 to $500+ after reaching spending requirement|
|Ongoing Rewards||None||None||0% to 5% on spending|
|Time to Approval||Same day||30+ days||Same day|
|Time to Funding||1 to 3 days||30+ days||7 to 10+ days to receive card|
|Minimum Credit Score||500+||680+||640+|
|Time in Business||3+ months||1+ years||No requirement|
|Minimum Annual Revenue||$50,000 to $100,000+||$100,000+||None|
|Best For||Working capital||One-time investments, expansion, refinancing||Recurring expenses, employee expense management, rewards|
|Learn More||Visit OnDeck||Visit SmartBiz||See Best Credit Cards|
Small business loans and small business credit cards are two types of financing that can both be used to help your business grow. Annual percentage rates for both are determined by your credit history and debt levels.
No matter the type of small business loan you choose, they typically provide significantly more access to capital (up to $5 million) than small business credit cards ($50,000 or more). However, small business loans don’t allow you to replenish and reuse your line of credit, like a small business credit card.
Another key factor to consider is how quickly you need funding. If you choose an SBA loan, it will typically take 30 days or more to get funded. This is compared to funding times as quick as one day for a short-term business loan from an online lender, or as soon as seven days for a small business credit card.
When considering which type of financing is right, keep in mind that small business loans are best for working capital, one-time investments, expansion, or refinancing existing debt. In contrast, small business credit cards are best for paying for recurring expenses, monitoring and controlling employee expenses, and earning rewards.
When to Use a Small Business Loan
A small business loan is best for businesses wanting larger amounts of funding, with up to $500,000 for short-term small business loans from online lenders and up to $5 million for more traditional loans, like SBA loans. Repayment terms are up to 36 months for short-term small business loans and up to 25 years for SBA loans and other traditional small business loans. Businesses can expect to pay an APR of 7.75% to more than 50%, depending on the loan type.
Consider a small business loan when you need financing to:
- Obtain working capital: Short-term business loans allow businesses to help cover payroll, expenses, and other financing gaps.
- Expand your business: Bank loans, like an SBA 7(a) loan, may be used to purchase equipment or acquire commercial real estate.
- Refinance debt: Pay off existing high-interest debt with the proceeds of your SBA loan.
- Purchase equipment: Use an SBA loan to finance equipment purchases over seven years or longer.
When to Use a Small Business Credit Card
A small business credit card is best for businesses that need access to a revolving credit line of $10,000 to $50,000 or more. It’s also easy for a startup business or firm with little revenue to qualify. You’ll pay monthly interest charges on the outstanding balance of 14% to 24% APR variable.
Consider a small business credit card when you need financing to:
- Pay monthly expenses: Use a credit card to pay for office supplies, telecommunications costs, or other recurring expenses for convenience and the ability to keep track of expenses in one place.
- Manage employee spending: Monitor spending and set per-card limits on employee spending to reduce fraud and keep business costs low.
- Float business expenses for free: Take advantage of 0% APR introductory offers to make one-time purchases and finance the cost for free over 12 months or longer.
For more information on how small business credit cards work, read our guide on the best small business credit cards.
When to Use Both a Small Business Loan & a Small Business Credit Card
Since small business loans and small business credit cards can be used to finance different needs, your business may have occasion to use both. Using both kinds of financing may allow you to solve both short- and long-term funding needs while growing your business.
Cases where it’s best to use both a small business loan and a small business credit card include:
- You need to cover payroll and everyday expenses: You may need a working capital loan to pay employees and small business credit cards so employees can pay for business expenses—and you can monitor them.
- You’re purchasing equipment and supplies to use the equipment: You may need financing to both purchase kitchen equipment for your restaurant and to pay for cooking supplies. In this example, you may want both kinds of financing to repay your loan over time and take advantage of rewards.
- You need to refinance debt: Refinance long-term debt with a small business loan. Refinance short-term debt with a 0% balance transfer offer from a small business credit card.
You may want to consider spacing out your applications for a small business loan and a small business credit card to improve your chances of qualifying for both. Lenders take into consideration how frequently you apply for financing when making lending decisions.
How a Small Business Loan Works
A small business loan is a lump-sum loan best used for one-time investments, expansion, refinancing, or as working capital. Short-term loans of up to $500,000 typically must be repaid in three to 36 months. If you opt for a more traditional small business loan, like an SBA loan, you can often get up to $5 million and repayment terms as long as 25 years.
Your business typically needs to be at least a year old to qualify for most small business loans. You’ll also need a personal credit score of at least 500 to qualify for a short-term loan from an online lender and at least 680 to qualify for a traditional small business loan.
Expected APRs for short-term loans from an online lender typically range from 10% to more than 50%. On the other hand, expected APRs on traditional small business loans, like SBA loans, typically range from 7.75% to 10.25%.
How a Small Business Credit Card Works
A small business credit card offers a revolving line of credit best used for recurring expenses, employee expense management, and to earn rewards. Your credit line of $10,000 to more than $50,000 replenishes as you pay your balance. Expect to pay a variable 14% to 25% APR, which changes with the prime rate.
You may also be required to pay an annual fee. Small business credit cards charge an annual fee of between $0 and $450. Cards also may offer the opportunity to earn cash back rewards or points rewards between 1% and 5% of the total amount you spend on goods and services.
Small Business Loan vs. Business Credit Card Costs
Small business loan and business credit card costs are expressed in terms of the APR, origination fees, and annual fees. Businesses can expect to pay APRs of 14% to 24% on small business credit cards versus 7.75% on the low end to 50% or more on the high end for small business loans. The APR on small business loans often includes one-time origination fees of 2% or more of the loan amount, while credit cards charge annual fees of $0 to $450.
Small Business Loan Costs
Small business loan interest rates are either fixed at origination or variable with pre-established interest rate adjustments. You’ll pay a lower interest rate with a traditional or SBA loan (APR as low as 7.75%), but it typically takes 30 days or more to get approved and funded. The APR on short-term, online small business loans is typically 10% to 50% or more, but you could get funded in three days or less.
The typical costs of a small business loan are:
- APR: 10% to 50%+ for online loans, 7.75% to 10.25% for traditional or SBA loans
- Annual Fee: None
- Origination Fee: 0% to 5% of the loan amount
Providers typically charge one-time fees to cover the cost of servicing and processing your loan that may be included in the APR. You’ll pay the least amount of fees with a traditional loan. You’ll pay more fees than a traditional loan for an online loan, but you might be able to get financing the bank would otherwise be unwilling to provide because of your credit score or time in business.
Business Credit Card Costs
Business credit cards typically charge variable APRs between 14% and 24%, which adjust with the prime rate. Some small business credit cards include introductory 0% APR financing for up to 15 months on purchases and balance transfers. Credit card interest rates generally aren’t fixed, meaning they may adjust with the prime rate. You may be charged an annual fee of $0 to $450.
The typical costs of a small business credit card are:
- APR: Ongoing 14% to 24%, although some cards offer a 0% introductory period
- Annual Fee: $0 to $450
- Origination Fee: None
The Chase Ink Business Cash℠ is an example of what a small business credit card that offers a 0% APR period costs. It charges no annual fee and offers an ongoing APR of 14.99% to 20.99%. Cardholders will receive a 0% introductory APR on purchases for the first 12 months.
Small Business Loan vs. Business Credit Card Access to Capital
How you access—and continue to use—financing is a key difference between loans and credit cards. Small business loans arrive in a lump sum and must be repaid over a fixed period of time. Business cards have a credit line that you can continue to access as you pay down your balance.
Small Business Loan Access to Capital
One big reason to take out a small business loan is to get access to a large amount of capital at once that you can repay over time. The loan is not revolving, meaning you can’t gain access to the funds again as you pay down your balance. Time to funding is one to three days for an online small business loan and 30 days or more for an SBA loan.
With a small business loan, the kind of capital you can receive is:
- Max Credit Limit: $500,000 for an online loan, $5 million for an SBA loan
- Time to Approval: Same day to 30 days or more
- Time to Funding: One to three days for an online loan to 30 days or more for a traditional loan
Online business loans from lenders like OnDeck typically cap out at about $500,000. However, if you need more funding, it’s possible to receive up to $5 million via a loan from a more traditional lender backed by the SBA.
Business Credit Card Access to Capital
Credit cards are best used for everyday spending or to pay for regular business expenses. You can avoid interest charges if you pay off your bill entirely each month. Because credit cards offer revolving credit, you can spend up to your credit limit repeatedly as you pay down your balance.
With a business credit card, the kind of capital you can receive is:
- Max Credit Limit: $50,000+
- Time to Approval: Same day
- Time to Funding: Seven to 10 days
Most small business credit cards come with a stated credit limit, but some issuers offer charge cards that have no preset spending limit, like the American Express Business Platinum Card®. If you have a large purchase to make, having a charge card means you can make that purchase without having to worry about bumping up against your limit.
Small Business Loan vs. Business Credit Card Repayment Terms
Repayment terms are another key difference between a small business loan and a business credit card. Business loans must be repaid over a set period of time, and your payment is fixed each week or month. Credit cards require minimum monthly payments, but don’t have a fixed repayment schedule. But if you don’t pay card balances off monthly, your costs could rise quickly.
Small Business Loan Repayment Terms
Small business loans must be repaid over a fixed period of time. Your monthly payment is determining by dividing the loan amount and accrued interest by the length of the loan in days, weeks, or months. Your payment should be the same each time, allowing you to plan for the expense in your budget.
The repayment terms of a small business loan are:
- Repayment Time: Three to 36 months for an online loan, up to 25 years for a traditional or SBA loan
- Monthly Minimum Payments: Fixed based on the loan amount and length of repayment
You may be able to pay more each time than the fixed payment calls for, which would reduce the total amount you pay in interest over the term of the loan. However, before paying more than your lender requires, make sure you won’t be charged a prepayment penalty. Also, some small business loans, like an SBA loan, offer much longer repayment terms. Small business loans with a term at the long end of 25 years are typically best for real estate purchases.
Business Credit Card Repayment Terms
Credit cards have no required pay-off date, meaning you theoretically can carry a balance forever. Issuers require you make a minimum monthly payment. Any amount you pay over the minimum payment reduces your outstanding balance. Any remaining balance that’s not paid off before the payment due date is charged interest.
The repayment terms of a business credit card are:
- Repayment Time: You are required to make minimum monthly payments that are primarily interest charges, but if you make only the minimum payment, it could take months or years to pay off your balance
- Monthly Minimum Payments: 2% to 4% of the outstanding amount
Credit cards require minimum monthly payments and allow you to carry the remaining balance from month to month. Charge cards, like a corporate credit card, work differently. You’re required to pay your full balance each month. In exchange, you won’t pay interest and may have no preset spending limit.
Small Business Loan vs. Business Credit Card Qualifications
Short-term online business loans are more widely available than business credit cards to people with credit scores as low as 500 (traditional loans require a credit score of 680+). This is largely because small business loans are often secured by collateral (or a UCC lien), and also business owners pledge to repay lenders in case of default. Most credit cards are unsecured, but the owner must also provide a personal guarantee to repay the issuer in the event of default.
Small Business Loan Qualifications
You must meet minimum personal credit score, time in business, and annual revenue requirements to qualify for a small business loan. Credit score requirements are typically lower for a small business loan than a business credit card, making a loan a good option for business owners with credit scores as low as 500.
The qualification requirements of a line of credit typically are:
- Personal Credit Score: 500+ for online loans (check yours for free), 680+ for traditional loans
- Time in Business: One+ year
- Revenue Required: $100,000 in annual revenues for traditional loans (may be lower for online loans)
Online providers like OnDeck may not require you pledge specific collateral like equipment or real estate, but rather may accept a general UCC lien on business assets and a personal guarantee. This can make qualifying easier and faster than a traditional small business loan.
Traditional small business loans, on the other hand, typically offer higher credit limits (with a higher credit score of 680+) because they require you to secure your small business loan with collateral. This security is typically in the form of personal assets, or specific business assets, or both. Plus, you’ll need to provide a personal guarantee for a traditional loan.
Business Credit Card Qualifications
You can qualify for a business credit card without demonstrating business revenue. Unlike with small business loans, there’s no requirement for how long you’ve been in business to qualify for a small business credit card. A card is a solid option for startups and companies with less than $100,000 in annual revenue.
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
If your credit score is below 640, you may be able to qualify for a secured business credit, like the Wells Fargo Business Secured. Your credit limit (of up to $25,000) is secured by a deposit you make into a collateral account. Search and compare business credit cards and their qualifications in our credit card marketplace.
Small Business Loan vs. Business Credit Card Rewards
Rewards are a key feature of small business credit cards. Issuers offer introductory rewards worth as much as $500+ as an enticement to apply for a card, and ongoing rewards of 1% to 5% to encourage users to continue using the card. Small business lenders don’t typically offer rewards to borrowers.
Small Business Loan Rewards
Lenders don’t offer rewards on small business loans as a way to entice you to choose a loan. Banks may offer you rewards or discounts on other products, such as bank accounts or other ancillary services, as a way to gain your loyalty. You might, for example, get a better rate on other loans or credit cards, or be able to take advantage of treasury management services at a discount, like ACH for employee payroll.
Business Credit Card Rewards
Credit card issuers may offer points or cash back as a reward for applying for the card and for your continuing use. Users can earn introductory rewards by reaching a minimum spending threshold, typically several thousands of dollars over the first several months of card ownership. Issuers may offer ongoing rewards tied to spending in certain categories or general spending.
Business credit cards offer the following types of rewards:
- Introductory Rewards: Up to $500+ after spending $1,000+ in the first three months of card ownership
- Ongoing Rewards: 1% to 5% issued in the form of points/miles or cash back
The best cash-back business credit cards offer enhanced rewards of up to 5% cash back for spending in certain categories, like purchases at office supply stores or on airfare.
Small Business Loan vs. Business Credit Card Ease of Use
Small business loans and business credit cards are used in fundamentally different ways. Owners use credit cards to finance day-to-day operations. The credit in these revolving accounts can be used again once you pay your bill. Small business loans are generally for one-time use. The money lent to you arrives in a lump sum and cannot be replenished without taking out another loan
Small Business Loan Ease of Use
Small business loans may be used for a variety of purposes, from purchasing inventory to covering payroll to buying equipment, but once you use the money from the loan, you no longer have access to it. If you need more money, you’ll have to apply for another loan.
Business Credit Card Ease of Use
Owners may use some or all of their credit using a small business credit card. The amount available to you is replenished as you pay your bill. Credit cards may be used to make purchases in a store or online.
Small Business Loan vs. Business Credit Card How to Apply
You can apply for either a small business loan or a business credit card online. In both cases, you’ll need to supply personal and business information. For a small business loan, you’ll need to provide proof of your revenues and time in business, as well as other financial documentation for a traditional loan or SBA loan from a bank.
You may have access to your loan in one to three business days for an online loan and more than 30 days for a traditional loan. You’ll receive your card in seven to 10 business days.
How to Apply for a Small Business Loan
You can begin the application process for most small business loans online. For short-term loans, the entire process can be completed online in minutes. For long-term loans, the process is more complicated because of the amount of documentation you’ll be required to submit. To learn more about the process, read our article on how to get a small business loan.
During the application process for an online small business loan, you’ll need to provide the following information: name, address, business revenue, and amount of financing you need. After filling out the application, you may be asked to connect the lender to your bank account. Lenders do this to verify revenue and to decide how much money they will lend to you.
The application process for a more traditional small business loan is more complicated. When applying for a traditional or SBA loan, you’ll typically need to supply documents like proof of business ownership, loan application history, business overview and history, current business financials, year-to-date profit and loss statement, year-to-date balance sheet, and business tax returns (two years’ worth).
If you’re looking for a small business loan of up to $500,000 and want to repay it in as little as three years, often the quickest and easiest place to get financing is with an online lender. Applying online with a lender like OnDeck takes minutes, with funding in as soon as one day.
How to Apply for a Business Credit Card
Business owners can apply for a business credit card like the Chase Ink Business CashSM card online in as little as 10 minutes. Issuers generally require a credit score of at least 640 to qualify, but you don’t need to show business revenue or time in business.
During the application process, you’ll need to provide the following information:
- Type of business
- Legal structure of business
After filling out the application, you could receive a response immediately. Your new card should arrive in the mail within seven to 10 business days.
Pros & Cons of a Small Business Loan
A small business loan provides businesses with access to a lump-sum loan that can be used as operating capital or to fund a one-time large purchase. Repayment schedules are flexible and interest rates are fixed, meaning the cost of your loan will not change. Small business loans are good for companies that are at least a year old and have at least $100,000 in annual revenue.
Pros of a Small Business Loan
The pros of a small business loan are:
- Higher Loan Amounts: Small business loans are lump-sum loans that typically range from $2,000 to $500,000. If you need access to more than $50,000 in capital, small business loans might be the best funding option available to you.
- Flexible Repayment Terms: Repayment terms are typically between three and 36 months with an online lender, or up to 10 years with a traditional or SBA loan. You may select the repayment time period that best suits your business at the time of application. This way, you’ll know exactly how much you have to pay each month and find a term that makes monthly payments affordable.
- Fixed Interest Rates: Once your application is approved, your interest rate typically will never change. This means you’ll know the full cost of your loan immediately and don’t have to worry about adjustable rates making your loan more expensive.
“Small business loans can consist of short-term loans, long-term loans, SBA loans, and many others. A traditional small business loan can offer higher loan amounts, lower fixed rates, and more affordable and flexible repayments options. However, credit restrictions may be higher, which can make it difficult for a borrower to be approved.
“Additionally, it is essential to take into consideration the collateral restrictions that the commercial lender may put in place before lending. Having secured property on your business assets may limit your ability to obtain future capital for future growth, whereas with a business credit card, no collateral is required and you have the flexibility to utilize the money needed over time while having the ability to repay at your convenience, as long as you make the minimum monthly payment.
“That said, similar to a small business loan, there are some factors to take into consideration when securing a business credit card, such as interest costs can be higher, rates can be variable and increase with prime, and it can impact your credit score.”
— Zach Raus, President of the Lending Division at Bankers Healthcare Group
Cons of a Small Business Loan
The cons of small business loan are:
- Higher Interest Rates: Although prime borrowers may qualify for interest rates of 7.75% to 10.25% for SBA loans, the expected APR on many online loans is in the range of 30% to 50%. That’s significantly higher than the 14% to 24% APR range many business credit cards offer.
- Harder to Qualify: Small business loans are generally available only to companies that have been in business for at least a year and have $100,000+ in annual revenue. Small and new businesses will find it hard to qualify for this financing and may have to rely on credit cards to build their businesses.
- Liens on your Assets: When your business enters into a financing agreement that is secured by collateral, a UCC lien could be filed against any assets you pledged to secure the loan. A UCC lien could prevent you from getting additional funding before paying off the loan.
“Business loans can describe a vast array of options. Bank and SBA loans tend to be more difficult and time-consuming to get, but if you do qualify, they can be some of the least expensive financing you can find for your business. Online and alternative small business loans are generally quick and easy to apply for, but they can also be very expensive, and may have confusing or restrictive repayment periods. Make sure you fully understand the terms and repayment conditions of any loan you’re taking out for your small business, but especially one that you can apply for with a few taps of your phone.”
— Maria Aspen, editor-at-large at Inc. magazine and author of Startup Money Made Easy (HarperCollins Leadership)
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 for recurring expenses. They’re especially beneficial for small businesses that have low annual revenues and can’t qualify for other financing. Many cards earn rewards that can be put back into the business in the form of cash or free travel.
Pros of Business Credit Cards
The pros of business credit cards are:
- Potentially Free Financing: Introductory APR offers give businesses a period of 0% APR financing on purchases and balance transfers that can help companies free up capital. If you get a card with no annual fee and pay off your balances early, you can avoid paying interest as well.
- Rewards for Spending: Business credit cards may offer rewards of up to 5% on spending that can be used to put back into your business. 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 Businesses: With a business credit card, even micro-businesses 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.
“Business credit cards are extremely versatile. You can use them to purchase equipment, boost inventory, or cover monthly costs. And if you have an excellent credit score, you can often get a low introductory rate and enjoy a rewards program that brings you extra perks. Basically, you’ll get much of the utility of a loan with a lot less paperwork and commitment. However, if you’re a startup, you may have to provide a personal guarantee, since there won’t be much business history to draw on in the qualification process. Still, if you’ve got a credit score of 680 or higher, you’re probably sitting pretty. One note of caution: Business credit cards typically come with higher interest rates than traditional loans, and you won’t be approved for as much money as you could get through a loan. Nonetheless, if you’re struggling to find funding, business credit cards can be a fantastic way to get some reliable and fast working capital.”
— Brock Blake, CEO and Founder of Lendio
Cons of Business Credit Cards
The cons of business credit cards are:
- Vendors Won’t Always Accept Them: 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.
- Annual Fees Can Be Costly: Some business credit cards charge annual fees of up to $450. This could offset the value of the rewards and cost your firm money if you can’t take advantage of some of the perks and benefits, like airport lounge access, that the annual fee pays for.
- Lower Credit Limit: Small business credit cards may offer credit limits of $10,000 to $50,000+. If you need access to more credit, consider a different type of loan if you can qualify.
“In some cases, a business credit card may be more appropriate than a traditional loan, particularly if there is a short, defined need like day-to-day operating costs. Getting a business credit card can also help a new small business owner establish a business credit history and profile, which is needed when applying for financing from a bank in the future. Although cards are a valuable option, credit card interest rates can be variable and higher than other financing options, meaning they should not be leveraged for long-term expenses that will require months or years to pay off.”
— Jay DesMarteau, Head of Regional Commercial Specialty Segments at TD Bank
Business Loan vs. Credit Card Frequently Asked Questions (FAQs)
If you still have questions about business loans versus small business credit cards, here are some of the most frequently asked questions. If you don’t see an answer to your question, visit the Fit Small Business Forum and post a question there.
Some common questions about business loan versus credit card are:
How do I qualify for a business loan?
You must meet minimum personal credit score, time in business, and annual revenue requirements to qualify for a small business loan. Before you apply, decide the type of loan you’ll need, learn the lender’s qualification requirements, and put together the required business and personal documentation.
How do I fund a new business with a credit card?
Business credit cards for new businesses are a great way to help get new firms off the ground. The best credit cards offer rewards that you can put back into your business, low or no annual fees, and interest-free financing for at least a year on purchases and balance transfers.
What is a good credit score for a small business loan?
Different types of lenders have different credit score requirements, but short-term online lenders typically require a minimum personal credit score of 500. Traditional bank lenders often require much higher personal credit scores. Some banks won’t lend to business owners who have a credit score below 680.
What is a good credit score for a credit card?
The minimum credit score requirement for many credit card issuers is 640, although certain types of business credit cards—including charge cards and travel rewards credit cards—may be reserved only for business owners with personal credit scores of 700+. If your credit score is below 640, you may be able to qualify for a secured business credit card, which requires a deposit.
Small business loans and business credit cards are financing options that businesses can use for different reasons. Small business loans are best for one-time large expenses, while credit cards are ideal for recurring monthly charges. Firms with one+ year in business, $100,000+ in revenue, and a credit score of 500+ may qualify for a loan. Credit cards don’t have revenue or years-in-business requirements, but typically require a 640+ credit score.