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Business lines of credit vs. credit cards

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

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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.

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.

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

Updated April 9th, 2020
Name Product Filter Values Loan amount Starting APR Requirements
OnDeck Business Line of Credit
$5,000 – $100,000
Companies in business at least 1 year, $100,000+ in gross annual revenue and majority owner with a 600+ personal credit score
A leading online business lender offering flexible financing at competitive fixed rates.
Fundbox
$1,000 – $100,000
4.99%
You must have an established business.
Get flat rate, short-term financing based on the financial health of your business, not your credit score.
Kabbage Small Business Line of Credit
$500 – $250,000
Varies
1+ years in business, $100,000+ annual revenue or $4,200+ monthly revenue over last 3 months
A simple, convenient online application could securely get the funds you need to grow your business.
Lendio
$500 – $5,000,000
6%
Operate a business in the US or Canada, have a business bank account and have a personal credit score of 675+.
Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
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Compare up to 4 providers

Updated April 9th, 2020
Name Product Rewards Purchase APR Annual fee
CitiBusiness® / AAdvantage® Platinum Select® World Mastercard®
2x miles on American Airlines, gas stations and select business categories and 1x miles on all other purchases
15.99% to 24.99% variable
$0 intro annual fee for the first year ($99 thereafter)
70,000 AAdvantage® miles after making $4,000 in purchases in first 4 months of account opening.
Comdata Universal Fuel Plus Mastercard
Up to 6 cents off per gallon on fuel depending on number of gallons purchases per month, plus save 5% on maintenance at Firestone and Tires Plus retail locations, 1.5% cash back at eligible retailers and 1% on all other purchases
28.99% variable
Up to $120
Save up to 6 cents off per gallon on fuel depending on number of gallons purchases per month, plus save 5% on maintenance at Firestone and Tires Plus retail locations, 1.5% cash back at eligible retailers and 1% on all other purchases.
BP Business Solutions Mastercard®
Up to 6 cents per gallon on fuel and 3.5 cents per gallon on diesel depending on number of gallons purchased per month
28.99% variable
Up to $120
Up to 6 cents per gallon on fuel and 3.5 cents per gallon on diesel depending on number of gallons purchased per month.
Brex for Startups
7x points on rideshares, 4x on Brex Travel, 3x at restaurants, 2x on software subscriptions and 1x points on all other purchases
N/A
$0
The first corporate card for startups. No personal liability or security deposit needed, meaning your personal credit score won't be affected.
Brex for Ecommerce
N/A
N/A
$0
60-day interest-free financing for e-commerce businesses.
Universal Premium Mastercard®
3 cents off per gallon when you buy 30,000 or more gallons in a month plus 3 cents off at the Retail Savings Network
29.24% variable
Up to $120
Earn 3 cents off per gallon when you buy 30,000 or more gallons in a month plus 3 cents off at the Retail Savings Network.
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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.

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