Weighing Your Options: Business Credit Card vs. Business Line of Credit
Credit is an important part of doing business, you won’t always have the capital on hand to invest in and grow your business according to your plans so it is paramount to ensure that you have a support system in place to pull credit from.
When it comes to getting the credit to support your business, credit cards and lines of credit are popular methods, but which is better for your business and how can they affect the future of your enterprise? These are important questions that you will want to consider when approaching either option and the answers may just change the course of how you operate.
Business Credit Card
A business credit card may be the more commonly known of the two credit methods mentioned above. They are typically a type of credit card specifically designed for use by businesses or business owners to make purchases and manage expenses for their company. They typically offer attractive features such as the ability to earn rewards or cashback, set spending limits for employees, and separate personal and business expenses. They can help a company build its credit history and establish a credit profile separate from the owner or employees.
Pros
Business credit cards can be convenient and easy to use while providing a revolving line of credit to the user. As stated, you can earn rewards and/or cashback, but it is always important to set realistic expectations when trying to attain these, it may not be worth accruing a large amount of interest just to get a small amount of cashback.
A business credit card can be great for building up a credit history if used responsibly. However, if used poorly this can actually be detrimental to the credit score of your business, potentially preventing you from accessing funding in the future.
Cons
Business credit cards can be a double-edged sword, a lot of their benefits have potential pitfalls that could heavily damage the credit foundation of your business and require a strict amount of self-control. They can often have high-interest rates which will take a toll on your business in the future.
With rewards being up for grabs it can be really easy to lose sight of financial planning, especially when at the edge of a budget and a reward is within sight. This temptation to overspend can be extremely dangerous, especially if you have multiple business credit cards among your employees.
Business Credit Card Providers At a Glance
Lender/Card | Regular APR | Benefits | Requirements |
|---|---|---|---|
Wells Fargo Business Elite Signature Card | 11.49% variable | No foreign transaction fees, up to 200 no-extra-cost employee cards | Annual sales over $1M, a credit score between 700-749, and a $125 annual fee (waived the first year) |
The Blue BusinessⓇ Plus Credit Card from Amex | 0.0% intro APR for first 12 months then 17.74 - 25.74% variable | No annual fee, high reward rates on first $50k in annual spending | A credit score of 700 - 749. |
American Express Ⓡ Business Gold Card | 18.74 - 26.74% variable | Flexible redemption and points transfer options, robust travel benefits. | A credit score of 700 - 749 and an annual fee of $295. |
Bank of America Ⓡ Business Advantage Customized Cash Rewards Mastercard Ⓡ | 16.49 - 26.49% variable on purchases and balance transfers | Introductory APR offer on purchases, 3% cashback rate on the spending category of your choice, preferred rewards for business members earn a 25-75% bonus. | A credit score of 750 - 850. |
Ink Business UnlimitedⓇ Credit Card | 0.0% intro APR for first 12 months then 17.49 - 23.49% | Generous welcome bonus, no annual fee, unlimited 1.5% cash back rewards on purchases | A credit score of 700 - 749. |
Business Line of Credit
A business line of credit is a type of loan offered by financial institutions to businesses. It allows them to draw funds up to a specified limit as needed, repay the borrowed amount, and re-borrow up to the limit as needed, rather than receiving the full amount of the loan in one lump sum. A line of credit is typically used for short-term working capital needs, such as managing cash flow or covering unexpected expenses.
Pros
A business line of credit often offers a lot more flexibility when it comes to the selection of your repayment options providing your business with the ability to cater the loan to your specific needs. It also can be used for larger expenses, making it great for purchases related to expanding your business or improving overall efficiency.
With a lower interest rate than that of business credit cards, it also provides the option of affordability while also sometimes offering tax benefits. However, the tax benefits of a business line of credit will depend on how the funds are used and the tax laws in the jurisdiction where the business operates. It’s recommended to consult with a tax professional or accountant to determine any potential tax benefits that can be associated when utilizing a business line of credit.
Cons
In some instances, it can take some time to get approval for a business line of credit and some offerings may even require you to put forward collateral, however, this differs from lender to lender, with many alternative lenders in the fintech space forgoing the need for collateral and committing to a quick application turnaround time.
In some instances, you may also be required to make regular repayments on your borrowed amount but this can be turned into an advantage with a revolving line of credit as it means that the funds are always readily available to you.
Business Line of Credit Providers At a Glance
Lender | Amount | Terms | Requirements |
Backd | $50K - $750K | 6 or 12 months | Minimum of 2 years in business, minimum monthly revenue of $50k, business bank account and a minimum credit score of 625. |
PNC Bank | $100K (max.) | Monthly repayments with no set terms | Minimum of 3 years in business, minimum annual revenue of $100K, a minimum credit score of 720, and must have a personal guarantee. |
Bluevine | $250K (max.) | 6 - 12 months | Minimum time of 6 months in business, minimum annual revenue of $120K, and a minimum credit score of 625. |
Kabbage | $2K - $250K | 6, 12, or 18 months | Minimum time of 1 year in business, minimum monthly revenue of $3K, and a minimum credit score of 640 |
Direct Comparison
The main purposes for both a business credit card and a business line of credit share some similarities in that both can be used for short-term expenses. However, a business line of credit provides more flexibility while also allowing you to make larger purchases and also being a great resource for long-term payments as well.
In terms of repayments, business credit cards require monthly payments while a business line credit requires interest-only payments until the credit is fully redrawn, which is then followed by regular payments on the borrowed amount. When it comes to the credit itself, business credit cards typically have a set credit limit that you cannot exceed while business lines of credit can be reloaded once the credit is repaid. This makes it a great option to continually return to when needing a source of credit to continually rely on, in addition to being a more cost-efficient offering as the interest rates are often lower than that of business credit cards.
When it comes to the approval process, both credit options are going to rely heavily on the source of the capital. It’s important to ensure that you do your due diligence and research the lender that you are approaching to see if they advertise an approval process that works in conjunction with the timeline for your capital needs.
It is also worth noting that both of these options can be used jointly, as they are both useful financial tools for a business and can counter the downsides of the other. Although you should approach using both with caution and be sure that you are staying on top of all financial admin to ensure that you are not overdrawing on both or accruing interest rates that could drag your business down.
How can Backd Grow your Business?
At Backd, we believe that our success is hinged on that of you and your business, and the path to that starts by removing any financial roadblocks that may stand in your way.
Instead of asking yourself, “what is the best business credit card?” investigate Backd’s business line of credit and discover how it can provide you with access to funds when you need them most. With instant access to revolving credit ranging from $50K to $750K along with unlimited terms and incredible rates, it may be the best credit option for your business.
Apply online today and get pre-approval in less than 24 hours!
