Business credit cards are a great option to finance your business’s ongoing expenses and other working capital needs, especially when your company is experiencing cash flow gaps. While some business owners prefer to take a business loan for their financing needs, there are several good reasons why you should use a business credit card instead.
Here are the top 18 reasons to use a credit card over a business loan, straight from the pros.
1. Convenience, Control & Rewards
Kelly Firment, Small Business Card Product Executive, Bank of America
While business owners can use both credit cards or loans for their working capital needs, there are typically different uses for each of these credit options. A few of the major reasons why a business owner would use a business credit card include convenience for everyday business purchases like gas, office supplies, online purchases, travel or everyday expenses, control ― the ability to offer employee cards so an owner can manage and track worker expenses ― and rewards, which offer the power to earn points or cash back when purchasing with a travel or cash back card.
2. You Can Earn Cash Back for Every Purchase
Jeff Hofmann, General Manager – Chase Ink, JP Morgan
There are benefits to using both business credit cards and business loans, depending on your business’ needs. Business credit cards are ideal for covering everyday business expenses, such as office supplies, advertising, and recurring monthly bills. They are also a great tool for managing your business’ cash flow when purchasing larger items, such as equipment and technology. With many business credit cards, you get rewarded for your spend with things like travel or cash back that you can invest in your business. For example, the Chase Ink Business Unlimited credit card allows business owners to earn an unlimited 1.5% cash back on every purchase, that can be used toward cash, gift cards, travel, and more. As a business owner, you have to evaluate your financial needs and determine what’s right for your business.
3. Credit Cards Can Help Separate Expenses
Meera Sridharan, Director of Marketing, Discover
A business credit card is an essential tool to build business credit, which in the future can be used to get a business loan. You can find a business credit card with no annual fee, unlimited 1.5% cash back on every purchase, and rewards bonus at the end of the first year. In addition, having a business credit card helps separate business expenses while offering multiple security benefits and business tracking tools.
4. Cards Can Be Used for Anything
Mike Kinane, Head of US Bankcard, TD Bank
Small business loans and credit cards are both great options for various types of business financing, but there are certain situations where one option may be more appropriate. When applying for a loan, small business owners should be able to demonstrate the need for financing and how it will be used. For example, this may include financing a renovation, purchasing new equipment or expanding to a new location. If there isn’t a defined need, a small business credit card might be a more appropriate option than a loan. This may include smaller, more flexible expenses like office supplies, utilities or advertising. Responsibly using a business credit card for these expenses has several benefits, including the ability to earn rewards as well as track one’s spending while building a business credit profile.
5. Ease & Frequency of Use
Chloe Gawrych, Business Expert, Business.org
Credit cards offer unparalleled convenience. Applying for a business loan can take anywhere from 24 hours to several months. However, if you have a business credit card in your wallet, you can pull it out and use it whenever you need it. Since business credit cards are a kind of revolving credit, you can use them repeatedly. With a business loan, you have to reapply each time you need another loan.
6. Collateral Is Not Mandatory
Jacob Dayan, CEO & Co-founder, Community Tax
Unless you are applying for a secured business credit card, one of the most common reasons it is better than a business loan is that you don’t need to offer collateral like you are sometimes required with a small business loan. Business credit cards are typically easier to qualify for, and it’s a better option for those who do not have assets to offer up as collateral.
7. Take Advantage of Rewards Credit Cards
Kurt Rathmann, CEO & Co-founder, ScaleFactor
If a business chooses to go ahead with a business credit card instead of taking a loan, business owners should seek out credit cards that will reward them in a way that is advantageous specifically to their business. Additionally, businesses should look for unlimited cash back, with no capping on how much cash back you can earn. For example, if traveling expenses are high for business, take advantage of the travel rewards cards.
8. A Credit Card Helps Build Business Credit
Janet Gershen-Siegel, Content Manager, Credit Suite
Loans aren’t open for business owners with low revenue who also have poor personal credit scores unless the business or its owner can put up collateral or offer a personal guarantee. For businesses which don’t want to do that, getting business credit cards is going to be the only option or certainly the more attractive one. When building business credit, a business should start with the vendor credit tier and work up to the retail credit, fleet credit, and then cash credit tiers. Any of these tiers can come with business credit cards. As always, pay on time in full and ask for credit limit increases as you go. With good business credit, you won’t have to depend on loans.
9. Attractive Introductory Rates
Logan Allec, Certified Public Accountant & Owner, Money Done Right
When it comes to low-interest rates, you can’t beat 0%, and that’s exactly what you’ll be paying if you sign up for a business credit card with a 0% introductory rate. There are some business credit cards on the market right now that offer a 0% rate for up to 15 months. This kind of financing isn’t possible with a business loan, which will typically start charging you interest right from day one.
10. Credit Cards Provide Easier Monitoring of Expenses
Kosei Okubo, CEO, Founder’s Guide
One of the advantages of using a business credit card over a small business loan is that credit cards provide an easier monitoring of expenses. If you use a credit card for your business expenses, the details of those expenses will show on your billing statement ― what you purchased, the date of purchase, merchant, and amount of transaction. This kind of detailed monitoring of purchases and expenses will only be available with a business loan if you do it manually.
11. It’s Easier to Qualify for a Business Credit Card Than a Loan
John Holloway, Co-founder, NoExam
Some businesses choose to use business credit cards over loans when starting out because getting a loan was not an option for them. If you had not been in business long enough to get a business loan, a business credit card is a great option. It’s easier to get approved for business credit cards with high limits than for a loan with reasonable interest rates. If you don’t want to go through the time-consuming process of applying for a business loan, getting a business credit card is your best bet.
12. Retail & Online Purchases Are Made Easy With Credit Cards
Amad Ebrahimi, CEO & Founder, Merchant Maverick
Credit cards are designed to make retail purchases easy. Most businesses these days are equipped to swipe your card or read your chip at the point of sale. With some rare exceptions, it’s not easy to apply for a term loan at the time of purchase. Credit cards are also more ubiquitous in this card-driven online market. Generally, you can get a higher limit with a business credit card than a loan.
13. Credit Cards Are Like Short-term Loans
Edith Pearce, Personal Injury Lawyer, The Pearce Law Firm P.C
If you commit to making sure you pay off your credit card every month, this is equivalent of essentially a 30-day loan at no cost. This strategy only makes sense if you pay off your credit card monthly as paying a high-interest rate should be avoided even if you are awarded points. That said, many businesses can eliminate or significantly reduce expenses on interest as long as they know how to manage their finances well.
14. Credit Cards Are Better for Smaller, Ongoing Costs
Zach Raus, President – Lending Division, Bankers Healthcare Group
A business credit card can be a better option than a loan when it comes to covering smaller, ongoing costs, such as recurring monthly business expenses or vendor payments. You can even set these up for automatic payments. If you’re a business owner who travels often, a business credit card can be great for earning rewards, points or miles. It’s also helpful in providing an itemized breakdown of your expenses that you can give to your accountant at year end.
15. Credit Cards Serve as a Revolving Line of Credit
Brittany Rush, Manager, Green City Heating and Air Conditioning
Once you pay off your credit card, you secure another line of credit each month, so it serves as a revolving line of credit for consistent use. This is one reason why using a business credit card for your working expenses is a good idea. Also, if you’re able to find ones with 0% APR for the first year, then you’re ahead of a loan’s offerings, which would always have interest paid on it. Just be certain to stay on top of your spending and payments.
Matthew Ross, Co-Owner & COO, RIZKNOWS LLC
With credit cards, you have the flexibility to spend money how you please. You can buy equipment, pay off suppliers, or whatever you need. With some business loans, there are restrictions as to how you can use the money. For example, when you apply for a business loan to start a website company, it is understood the money would go towards launching a new website and not for anything else that you might need for your business.
17. You Can Use Credit Card Perks to Reward Employees
John Anton, President, DesignAShirt
Business credit cards offer perks such as airline or hotel miles, which you can use to reward your employees. For instance, upon major employment anniversaries, you can offer an employee and their family a trip to a location of their choice for little to no out-of-pocket expense on their and your part by using those airline miles, hotel points, and even free car rental.
18. You Can Pay Off Your Balance in Advance to Avoid Interest
Sean Messier, Credit Industry Analyst, Credit Card Insider
Business cards are generally more flexible than business loans. Most types of loans are designed to be paid off after a set period of time with a fixed interest rate while a business credit card lets you pay off your debt well in advance to avoid accumulating interest fees in the first place.
Business credit cards and small business loans are two popular business financing options. While business loans are recommended for those seeking substantial, long-term financing, a business credit card is a good option for businesses that need temporary funding for their small, day-to-day expenses. Business owners asking, “Should I get a business credit card?” should be sure to consider the reasons above to consider a credit card instead of a loan.