Business Line of Credit vs. Business Credit Card: Pros & Cons

Business Line of Credit vs. Business Credit Card: Pros & Cons

2 Comment

Advertiser & Editorial Disclosure

Between cash flow issues and unpaid invoices, or simply a lull in business, it’s not uncommon for small businesses to find themselves in need of some cash. This isn’t an unsolvable problem, however. Many businesses have turned to outside financing to solve their cash flow issues. While a business loan may not be the exact fit for the situation, business credit cards and business lines of credit can be excellent solutions to solve the problem at hand.

Credit cards and lines of credit operate somewhat similarly; they each set a borrowing limit, they charge interest only once money has been used or borrowed, and they’re great backups for emergency situations. What, then, are the main differences between the two? Here’s a rundown of the pros and cons of a business line of credit and a business credit card.

Business Line of Credit

While a business loan can offer a significant amount of cash, it struggles to offer the flexibility of a business line of credit. Having a great business credit score (check yours for free with Nav) and solid financials could qualify you for a low interest rate and a higher limit. Having $100,000 or so at your disposal for a low interest rate sounds pretty amazing, but is there a catch?

Line of Credit by Fundbox

The Fundbox Line of Credit is a common sense approach to small business funding, with Learn More

Pros

As mentioned previously, business lines of credit are usually sought out for their flexibility. Where with a business loan you’d begin making payments with interest right away, you only pay interest on the amount of the line of credit you use. This payback will have a term like with any loan, but you’ll only have to pay back what you use.

Additionally, interest rates for business lines of credit are typically much lower than credit card interest rates. With a good business credit profile and sufficient collateral, you can potentially lower your rate to around 5% or lower.

Overall, a business line of credit is a great resource for when your business is in a pinch. If you find yourself facing a great growth opportunity but without the cash on hand to go through with it, a line of credit can save the day.

Cons

Like with any credit or finance product, there are things to watch out for when working with a business line of credit. While the perks with a line of credit are clear, keep in mind that a line of credit can be difficult to qualify for. You’ll likely need a good amount of tax and financial documentation to provide to your lender for them to make a decision in your case.

While the interest rate may be lower than a credit card or other high-interest offers, that doesn’t mean you’ll be exempt from fees. If you’re offered a line of credit, be sure to look closely over the terms before signing to be aware of any impending fees or charges that could be headed your way.

Business Credit Cards—Marketplace

Having emergency cash on hand can be your key to managing cash flow.
Fortunately, business credit cards can help—Browse business credit cards to find the right card and qualify in minutes!

Business Credit Card

Pros

The major credit card companies have really stepped up their game and developed excellent business card portfolios. For example, just recently Marriott merged with Starwood Preferred Guest, which expands the reward options for Starwood Preferred Guest® Business Credit Card from American Express. There are oodles of cards with different perks available, so whatever your business needs and whatever perks you’re looking for, there’s a good chance you’ll find a card that fits.

Starwood Preferred Guest® Business Credit Card from American Express
American Express is a Nav Partner
Terms, Rates & Fees

Starwood Preferred Guest® Business Credit Card from American Express

Earn 75,000 bonus points after you use your new Card to make $3,000 in purchases within the Learn More

Apart from rewards, you can likely find a card with an introductory offer with low or no interest. A lot of cards will incentivize spending within the first few months of opening the card, so finding a card that intersects those two perks could be a great win.

Just like a business line of credit, you’ll have the flexibility to only pay interest on what you use. Even if you have a high credit limit, your payments will only be determined by the amount you’ve spent. As well, you’ll be able to build your business credit as you make payments on time and avoid carrying a high balance.

Cons

As with personal credit cards, interest rates for business credit cards aren’t going to be low. If your card has an introductory offer, it’s bound to expire and shoot up to that 17% rate or even higher. Your first year may help you avoid an annual fee, but some business cards can have steep fees after once that year is over.

Like with any credit product, if you don’t make your payments on time, you could be subject to high fees or extra charges, potentially making your payments higher and making the strain even greater.

Whatever your goals are for your business, you’ll have plenty of options. Be sure to do your homework and know before you go to make sure your business is protected and your goals are never out of sight.

More Business Cards to Consider

SimplyCash® Plus Business Credit Card from American Express
American Express is a Nav Partner
Terms, Rates & Fees

SimplyCash® Plus Business Credit Card from American Express

Special offer: save on interest with a 0% intro APR on purchases for 15 months; after that Learn More
The Blue Business℠ Plus Credit Card from American Express
American Express is a Nav Partner
Terms, Rates & Fees

The Blue Business℠ Plus Credit Card from American Express

Get rewarded for business as usual. Earn 2X points on everyday business purchases such as Learn More

New! Ink Business Unlimited℠ Credit Card

Earn $500 bonus cash back after you spend $3,000 on purchases in the first 3 months from account Learn More

Rate This Article

This article currently has 5 ratings with an average of 4.5 stars.

About the Author — Connor Wilson is a writer at Nav, a free site giving business owners access to their business and personal credit scores, and tools that match them to the best financing and services.

Have at it! We'd love to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and protect yourself. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers.

Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. Responses have not been reviewed, approved or otherwise endorsed by the credit card, financing and service companies and it is not their responsibility to ensure all posts and/or questions are answered.

Leave a Reply

Your email address will not be published. Required fields are marked *

2 responses to “Business Line of Credit vs. Business Credit Card: Pros & Cons