Editor's choice: First Down Funding business loans
- No prepayment penalties
- Loans up to $300,000
- Bad credit OK
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A business credit card and business loan generally serve two different purposes. One is designed to help you cover small costs as they come up, like ordering new coffee filters for the office. The other is meant to cover a large one-time expense. But both can be viable options in more unique situations, like when you can repay your debt in a year.
|Business credit card||Business term loan|
|Funding amount||A specified limit, as high as $250,000, with flexible, ongoing access to funds||Business financing up to $5 million provided in one lump sum|
|Repayment||Low minimum monthly repayments||A set repayment schedule with monthly payments and a payoff date|
|Eligibility||Less requirements than a business loan, but typically requires good personal credit||Generally, you must be in business for at least a year and have annual revenue of $100,000 or more, good personal credit|
|Starting APR||Can be as low as 11.99%, some cards offer 0% APR promotional periods for up to 12 months||Can be as low as 6%|
|Fees||Annual fees, late repayment fees and more may apply||Application fees, origination fees, late repayment fees and more may apply|
|Other features||Travel insurance, employee spending controls and monitoring, integration with accounting software||Ability to sync to your online accounting software|
|Rewards||You can earn cash back on office supply purchases, shipping, advertising, gas and more, or you can earn travel miles||No rewards|
|Perks||You can get access to airport lounges, free checked bags, priority boarding, companion certificate and more||May help you qualify for larger loan amounts with the same lender in the future|
|Application timing||Credit card approval is often instant||It depends on the lender and the amount you borrow, often between one and 90 days|
|Advantages||Flexible funding, continuously available money and bonus features||Many different loan options, can be closely tailored to your borrowing needs|
|Disadvantages||Lower funding amount, higher APR||Less additional perks, stricter requirements|
It depends on what you need to finance. Business loans are designed to cover a large one-time expense, while credit cards are designed to cover smaller expenses that are hard to predict, over a long period of time.
It also depends on your cash flow. If you have the cash flow to pay off your credit card balance each month, you won’t have to pay any interest. Some credit cards come with a 0% APR promotional period, which can last as long as 12 months. If you can pay off the balance before the period is up, you also won’t have to pay interest.
A line of credit falls somewhere in between a loan and a credit card. It gives your business access to funds that you can withdraw from as needed, like a credit card. But your withdrawals are in cash, which you can use to cover ongoing expenses that credit cards can’t — like utilities or rent.
They also tend to have higher credit limits than credit cards, making them suitable for a large project with costs that are difficult to predict. Some business lines of credit come with minimum monthly payments, while others turn each draw into a short-term loan.
Business credit cards offer a number of advantages in comparison to typical business loans, mostly in the form of extra features. How extensively you plan on using these features often answers the question of if a business credit card is worth it for you.
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