Business lines of credit vs. credit cards | finder.com
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Business lines of credit vs. credit cards

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Compare credit limits, costs and more to find the right one for your working capital needs.

So your business needs access to funds to patch up cashflow gaps, pay for an ongoing project or prepare for an unexpected expense…

Both lines of credit and credit cards are useful for working capital needs, but they aren’t exactly the same. While there are times when one can be more beneficial than the other, some businesses might find both useful.

Kabbage Small Business Line of Credit

Our top pick: Kabbage

Apply for a line of credit up to $250,000 and take your small business to the next level.

  • Min. Amount: $500
  • Max. Amount: $250,000
  • Quick approval and fast funding
  • Kabbage Card can be used anywhere Visa is accepted to make a purchase
  • Requirements: $50,000+ annual revenue, 1+ years in business

    Business lines of credit vs. business credit cards

    Business line of creditBusiness credit card
    Best forCovering cashflow gaps and ongoing projectsManaging employee expenses and small projects
    Credit limit$2,000 to $500,000$500 to $40,000
    Typical starting APR10%14%
    Potential feesOrigination or withdrawal fee of 1% to 5%Annual fee of $0 to $450
    Turnaround time1 to 3 days7 to 10 days
    Minimum credit score600700
    Repayment6 to 12 months to pay off each withdrawal or minimum monthly repaymentsMonthly minimum repayments
    CompareCompare business lines of creditCompare business credit cards

    How business lines of credit work

    A business line of credit is often compared to a credit card for good reason. Both give your business access to funds up to a credit limit, which you repay plus interest. But there are a few key differences. Lines of credit tend to be larger, for example — with some online lenders offering limits up to $500,000 — and have lower rates.

    While some lines of credit come with an annual fee, it’s more common for lenders to charge an origination fee when you first sign up or every time you withdraw funds. This is often between 1% and 5% of the credit limit or withdrawal amount.

    How you repay your loan also depends on the lender. With providers like Kabbage, each withdrawal turns into a short-term loan that you repay, plus interest, over a fixed period of time — typically between six and 12 months. With other lenders, each withdrawal gets added to your balance and you only have to make minimum monthly repayments.

    When to take out a business line of credit

    You might want to use a business line of credit in the following situations:

    • When you’re experiencing seasonal cashflow gaps. With higher limits than a credit card, you can use a line of credit to cover relatively large expenses like rent, inventory or payroll when you’re struggling.
    • When you need access to cash. Some vendors don’t accept credit as payment. That’s where a line of credit comes in handy — you can withdraw cash without having to pay the extra rates or fees that come with a credit card.
    • When you don’t have perfect credit. Business lines of credit are accessible to a wider range of credit scores than credit cards — though your interest rate may be higher.

    Benefits and drawbacks of a business line of credit

    Not sure if you want a business line of credit? Take these factors into consideration before making your decision.

    Benefits of a business line of credit
    • Higher credit limits. Business lines of credit can come with credit limits as high as $500,000 with online lenders.
    • Access to cash. A line of credit can cover costs that you can’t pay with a credit card, like rent or some vendors.
    • Usually no annual fee. Annual fees aren’t common with business lines of credit.
    Drawbacks of a business line of credit
    • Origination or withdrawal fee. Some lenders require you to pay a fee every time you make a withdrawal from your credit line.
    • Not always revolving. This means you might have to reapply for your line of credit every year or so, rather than having indefinite access.
    • Potentially high rates. APRs on credit lines might start low, but they can get higher than anything you’d find on a credit card if you have bad credit.

    SBA lines of credit

    Businesses that have big ongoing projects with costs that are difficult to predict might want to look into lines of credit backed by the Small Business Administration (SBA). Credit limits can go up to $5 million, plus they come with highly competitive rates.

    To be eligible, you need to meet the SBA’s size standards for small businesses and prove you’ve tried and failed to get credit elsewhere, among several other requirements. The application can take a long time to complete, so you might want to take advantage of a service like SmartBiz to help you navigate the laundry list of forms and documents your business needs to submit.

    Should my business apply for an SBA loan?

    How business credit cards work

    Business credit cards work by giving you a card and access to a revolving line of credit, which you can withdraw from as needed. Each time you make a withdrawal, it gets added to your loan balance and accrues interest. As you pay down your balance, you’re free to borrow that money again.

    Typically, credit cards come with minimum monthly payments of around 25% of your loan balance, though there’s no penalty for paying it off in full. Many come with a 0% intro APR period of around six to 12 months. And your business can often earn rewards like airline miles or cash back based on how much you spend.

    Credit limits can go up to around $40,000, making it an option for smaller projects, but not sustainable for larger financing needs like covering rent or payroll. Credit cards make it easier to keep track of employee expenses, though, as most issuers allow you to add extra employee cards to your account.

    When to get a business credit card

    • When you have low revenue. Minimum monthly repayments make it possible to pay off your business’s debt as you’re able, reducing the risk of default.
    • When you need to manage employee expenses. Credit cards make it easier for your employees to make day-to-day office purchases, book flights or cover business lunches.
    • When you want rewards. With cashback rewards, you can earn between 1% and 5% of what you spend as statement credit or a deposit into your bank account. Other rewards include airline miles or discounts on gas.
    • When your business is starting out. Credit cards can be easier to qualify for if you can’t meet the revenue or time-in-business requirements that often come with lines of credit.

    Benefits and drawbacks of a business credit card

    Business credit cards might be great in certain situations, but there are some downsides.

    Benefits of a business credit card
    • Multiple cards per account. Business credit cards can give multiple employees and business owners access to funds — doing away with the need to collect receipts and issue reimbursements.
    • Flexible repayments. Minimum monthly repayments make it easier for you to pay off your business’s debt as you can afford to.
    • Earn points for spending. Many business credit cards offer rewards for every dollar you spend, which can help your business save big.
    • Intro APR period. A new business credit card can allow you to make a large purchase and pay it off over a few months time without interest.
    Drawbacks of a business credit card
    • Longer turnaround time. It typically takes a week or longer to get your hands on a new business credit card, so it’s not ideal for emergency expenses.
    • Danger of taking on too much debt. Minimum monthly payments are a double-edged sword. If you’re not careful, you could end up with more debt than your business can comfortably handle paying back.
    • Variable rates. Credit cards typically come with variable interest rates, which have the potential to be lower than fixed rates, but can make repayments difficult to predict.

    Compare business lines of credit and business credit cards

    Rates last updated November 18th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    Kabbage Small Business Line of Credit
    A simple, convenient online application could securely get the funds you need to grow your business.
    $500
    $250,000
    1+ years in business, $50,000+ annual revenue or $4,200+ monthly revenue over last 3 months
    OnDeck Small Business Loans
    A leading online business lender offering flexible financing at competitive fixed rates.
    $5,000
    $500,000
    500+ personal credit score, 1+ years in business, $100,000+ annual revenue
    Lendio Business Loan Marketplace
    Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
    $500
    $5,000,000
    Must operate a business in the US or Canada, have a business bank account and have a personal credit score of 560+.
    Lending Express Business Loan Marketplace
    $5,000
    $500,000
    3+ months in business and $10,000+ monthly revenue or 6+ months in business and $2,000+ monthly revenue

    Compare up to 4 providers

    Updated November 18th, 2018
    Name Product APR (Annual Percentage Rate) for Purchases Introductory Purchase APR Annual Fee
    None (Charge Card)
    $450
    New cardholders can earn 75,000 Membership Rewards® bonus points by spending $10,000 on purchases for the first 50,000 points and then another $10,000 for the next 25,000 points on their new card in the first 3 months.
    None (Charge Card)
    $0 annual fee for the first year ($250 thereafter)
    This charge card gives you the option to pay in full each month or to carry a balance for up to 60 days with no interest.
    16.24%, 20.24% or 24.24% variable
    $295
    Earn Membership Rewards® points after you spend in qualifying purchases on the card within your first months of card membership.
    14.24%, 19.24% or 21.24% variable
    0% for the first 9 months (then 14.24%, 19.24% or 21.24% variable)
    $0
    Save on interest with a 0% intro APR on purchases for 9 months; after that your APR will be 14.24% - 21.24% variable.
    15.24% to 21.24% variable
    0% for the first 12 months (then 15.24% to 21.24% variable)
    $0
    $500 bonus cash back after you spend $3,000 in the first 3 months.
    17.99% to 22.99% variable
    $95
    80,000 bonus points after you spend $5,000 on purchases in the first 3 months after account opening. That's $1,000 toward travel rewards when you redeem through Chase Ultimate Rewards®.
    17.99% to 24.99% variable
    $0 annual fee for the first year ($99 thereafter)
    75,000 Bonus points after you spend $3,000 on purchases in your first 3 months from your account opening with your Marriott Rewards Premier Business credit card.
    24.74% variable
    $0
    Get the credit you want for your business, and unlimited 1% cash back on every purchase, every day.
    14.74%, 18.74% or 22.74% variable
    0% for the first 9 months (then 14.74%, 18.74% or 22.74% variable)
    $0
    Unlimited 1.5X miles per dollar on every purchase, every day.
    18.74% variable
    $0 annual fee for the first year ($95 thereafter)
    Unlimited 2 miles per dollar on every purchase, every day.
    14.74%, 18.74% or 22.74% variable
    0% for the first 9 months (then 14.74%, 18.74% or 22.74% variable)
    $0
    Unlimited 1.5 cash back on every purchase, every day.
    18.74% variable
    $0 annual fee for the first year ($95 thereafter)
    Unlimited 2% cash back from Spark Cash could mean thousands of dollars each year going back into your business. No minimum to redeem.
    17.99% to 24.99% variable
    $0 annual fee for the first year ($95 thereafter)
    50,000 bonus miles after you spend $3,000 on purchases in the first 3 months your account is open.
    17.99% to 24.99% variable
    0% for the first 9 months (then 17.99% to 24.99% variable)
    $99
    Earn 2x points on Southwest® purchases and 1x point on all other purchases. Plus 6,000 anniversary bonus points.
    17.99% to 25.99% variable
    $0 annual fee for the first year ($99 thereafter)
    For a limited time, earn 70,000 American Airlines AAdvantage® bonus miles after making $4,000 in purchases within the first 4 months of account opening.
    13.24% to 23.24% variable
    0% for the first 9 billing cycles (then 13.24% to 23.24% variable)
    $0
    Earn up to 3% cash back on business purchases with the Business Advantage Cash Rewards Mastercard® credit card.

    Compare up to 4 providers

    Can my business benefit from both?

    Since business lines of credit and credit cards fit different needs, there are some situations when you might want to look into both.

    • When you need access to more funds. Taking out a business line of credit and a credit card can help you maximize your business’s credit limit.
    • When you want to improve your business credit score. Business credit scores might not be as widely used as personal credit scores, but paying off multiple types of debt can strengthen your rating more than if you only went with one.
    • When you want flexible cash and payments. A line of credit has the benefit of giving you access to cash, while a credit card comes with the perk of flexible repayments.

    Bottom line

    Business lines of credit and credit cards might work similarly, but they serve different purposes. There’s a chance your business might only benefit from one — or you could find them both useful, depending on your needs.

    Curious about what financing offer is best for you? Compare best business lines of credit or compare top business credit cards to learn about your options.

    Frequently asked questions

    Picture: Shutterstock

    Anna Serio

    Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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