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Business lines of credit vs. credit cards

Compare credit limits, costs and features of a business line of credit and business credit cards to determine which better suits your needs.

If your small business needs access to funds to patch up cashflow gaps, pay for an ongoing project or prepare for an unexpected expense, then both lines of credit and business credit cards could potentially be suitable. While these products may appear similar, they both have unique features and fees – and while there are times when one can be more beneficial than the other, some businesses might find both a credit card and a line of credit 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$1,000 to $500,000$500 to $20,000+
Typical starting APR8%19.99%
Potential feesOrigination or withdrawal fee of 1% to 5%Annual fee of $0 to $499
Turnaround time1 to 3 days7 to 10 days
RepaymentUsually must pay at least the monthly interest paymentMust make minimum payment each month

How business lines of credit work

A business line of credit is often compared to a credit card – and for good reason. Both give your business access to funds up to a set credit limit, which you repay plus interest. But there are a few key differences: Lines of credit tend to be larger and usually have much 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 to charge a fee every time you make a withdrawal. This is often between 1% and 5% of the credit limit or withdrawal amount.

How you repay your loan also depends on the lender. Most lenders add each withdrawal to your balance and you only have to make minimum monthly repayments. However, some lenders may turn each withdrawal into a short-term loan that you repay, plus interest, over a fixed period of time — typically between six and 12 months.

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 usually 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, while others will charge a one-time origination fee of 1-5% of the credit limit.
  • Not always revolving. This means you might have to reapply for your line of credit every year or so, rather than having indefinite access – although most of the time this is not the case.
  • 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.

How business credit cards work

Business credit cards work by giving you a physical credit card and access to a revolving line of credit. Every time you make a purchase on your credit card, it gets added to your balance. You’ll have a set monthly credit limit, which means you can spend up to that amount without making any repayments. If you pay your balance off in full before the grace period ends, you won’t have to pay interest. If you don’t pay it off in full, you’ll need to make the minimum payment and the remaining balance will begin to accrue interest.

Typically, credit cards come with minimum monthly payments of around 2% or $10 of your balance, though there’s no penalty for paying it off in full at any time. You’ll want to be careful as there are both regular credit cards and charge cards out there. If you have a charge card, you’ll need to pay back the balance in full by the due date. If you have a regular credit card, you only have to make the minimum payment at the least.

With a credit card, you can often earn rewards like airline miles, rewards points or cash back based on how much you spend. Credit limits can go up to around $20,000+, 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. Some providers also offer access to complimentary business tools.

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 expenses.
  • When you want rewards. With cash back, miles or points, you can earn for every $1 you spend. You can then redeem points or miles for flights, hotels, merchandise and more, while you can use cash back to pay back your credit card balance or put it into savings.
  • 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 take advantage of a low interest rate for a set number of months, or reap the rewards of a low rate balance transfer offer.
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.

Compare business credit cards

Name Product Purchase Interest Rate Cash Advance Rate Annual Fee Minimum Income Welcome Offer
American Express Business Edge Card
Earn up to 57,000 Membership Rewards points in your first year. Earn 45,000 Welcome Bonus points when you charge $5,000 in purchases to your Card in your first three months, and earn 1,000 Membership Rewards points each month (a total of 12,000 annually) when you spend a minimum of $3,000 on eligible purchases.
American Express Aeroplan Business Reserve Card
Earn up to 90,000 Aeroplan points and a bonus Buddy Pass.
BMO Cashback Business Mastercard
Get 10% cash back on gas, office supplies, cell phone bills and internet bills for 3 months.
BMO World Elite Business Mastercard
$0 annual fee for the first year ($149 thereafter)
Get up to 70,000 BMO reward points. Get 50,000 points when you spend $5,000 in the first three months and an additional 20,000 points when you spend $35,000 in the first twelve months. Plus, get the $149 fee waived for the first year.
BMO Air Miles No-Fee Business Mastercard
Get 1,000 AIR MILES Bonus Miles (over $100 towards your purchases with AIR MILES Cash).
BMO AIR MILES World Elite Business Mastercard
$0 annual fee for the first year ($149 thereafter)
American Express AIR MILES for Business Card
Earn a Welcome Bonus of 2,000 AIR MILES when you spend at least $5,000 on eligible purchases within the first three months
Business Platinum Card from American Express
Earn a Welcome Bonus of up to 100,000 Membership Rewards points ($1,000 in statement credits that you can reinvest into your business).
Marriott Bonvoy Business American Express Card
Earn a Welcome Bonus of up to 85,000 Marriott Bonvoy points. Plus, earn 5 points for every $1 spent on eligible gas, dining & travel (excluding lodging) for the first 3 months.
American Express Business Gold Rewards Card
Earn a Welcome Bonus of up to 110,000 Membership Rewards points. If redeemed for statement credit, this is $1,100 that you can reinvest in your business.
American Express AIR MILES Gold Business Card
Earn a Welcome Bonus of 150 AIR MILES when you spend at least $1,000 in eligible purchases within the first three months

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. These might include:

  • 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 have one type.
  • 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.
  • When you want rewards and a high limit. Having both types of accounts can allow you to earn rewards while still accessing a high credit limit should you need one.

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? Head to our guide on business loans to learn more.

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