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Business Line of Credit vs. Business Credit Card: Which is Right for My Business?

Samantha Novick

Samantha Novick

Content Marketing Writer at Funding Circle
Samantha is a content marketing writer covering business and finance for Funding Circle.
Samantha Novick

As an entrepreneur, capital is one of your most valuable tools. It takes money to make money, but you often need an initial influx of cash to turn a healthy ROI. However, even the most successful businesses don’t always have a pile of cash on hand to supplement its cash flow—that’s where a business line of credit or a business credit card can come in handy.

A business line of credit and a business credit card give you immediate access to capital, even if you have little to no cash on hand. Whether you need to fill a gap in your cash flow, cover an emergency, seize a prime opportunity, or build a safety fund, these two forms of financing can be a lifesaver for your business.

But, which is better? If you’re an established business, do you even need one? Should you ever have both?

Great questions! All of which—and more—we’ll answer in this article.

First, let’s cover the nitty-gritty details of business lines of credit and business credit cards. Then, we’ll discuss all of the significant discrepancies, so you can learn which one fits your use case.


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What is a business line of credit?

A business line of credit is a revolving loan that provides your business with a fixed amount of cash that you can tap into whenever you need it. You draw from this line by making a direct deposit to your checking account, or you can use a debit card linked to your account.

Below, we’ll dig a bit deeper into the different elements of a line of credit:

Fixed amount of cash

Online lenders typically offer lines of credit up to $100,000 to $250,000, but you can find lenders who’ll offer more, too.

Revolving capital

If you tap into your line of credit, you’ll get quick access to the capital again once you repay what you’ve used—no need to reapply.

Interest paid on what you use

When you use your line of credit, you’ll only pay interest on the funds you borrow—not the full amount of available credit.

There if you need it

You can use your line of credit as a safety net and keep it in your back pocket. Tap into it regularly? Great. Never use it? That’s okay, too.

Flexible spending

Your line of credit can cover practically any business need. Use it to hire staff, purchase equipment, restock the shelves, furnish a new location, or just pay the bills.


Related: 4 Things You Need to Know About Establishing Business Credit

What is a business credit card?

You can use a business credit card much the same way you use a personal credit card. Your credit card gives your business access to a monthly spending limit, you spend as much as you need within that limit, and then you pay it back in full (ideally) before you accrue interest.

Here are more important characteristics of business credit cards:

Flexible

Like a line of credit, you can use your business credit card on just about any business-related expense. Whether you need to pick up supplies for the office, take a client out for lunch, or cover smaller monthly bills, your credit card can help you out.

Rewards programs

Credit cards reward you for spending. Some cards will give you signup perks like bonus cash, and most provide ongoing incentives like cash back, miles and points on purchases you make.

Zero percent introductory rates

Credit cards can have zero percent APR introductory periods for as long as 18 months. This means you can spend what you need and still have plenty of time to pay off any major purchase interest-free.

Revolving capital

Once you pay back the portion of the credit card limit you’ve used, you’ll get access to that capital again.

Credit history booster

Business credit cards are usually easier to obtain than small business loans, making them a great introductory financing tool for new businesses in need of working capital. Plus, using your card will help build your business credit history, making it easier for you to score bigger, better loans down the road.


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Differences between a business line of credit and business credit card

While a line of credit and a business credit card have a lot in common, there are a few significant distinctions. Neither is better than the other, per se, they’re just different.

Here’s how to determine which form of financing is right for your business:

Business credit cards grant rewards and perks

A business line of credit isn’t going to get you any cool cash back rewards or zero percent APR introductory periods. On the other hand, credit cards often reward your business for the types of purchases you make most often: office supplies, advertising, and travel, to name a few.

However, business credit cards often require annual fees, while a line of credit does not.

A line of credit typically has lower interest rates and higher credit limits

Your business line of credit will usually have a lower interest rate than a business credit card, and it’ll likely have a higher credit limit, too. If you need access to large amounts of capital, then opt for a line of credit.

Business credit cards have more restrictive cash advance rules

Your line of credit will typically let you take a cash advance on up to 100 percent of your total eligible credit. In contrast, credit cards generally charge fees, carry higher rates, and cap cash advances at around 20 percent.

Which financing tool is right for your business?

There’s no one-size-fits-all financing tool for every business. You’ll need to look at the pros, cons and differences between these two financing methods to find the one that works best for you.

If you need access to a large amount of working capital, then a line of credit will likely be a better fit. However, if you want access to perks and rewards and are confident that you can pay off your credit card in full every month, a business credit card might be a better fit.

You know your business best, so you’ll need to examine your options and make the best choice using the above information as your guide.

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