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Business Credit Card vs. Business Loan: Which Is Best for Your Business?

Business Credit Card vs. Business Loan: Which Is Best for Your Business?
Lauren Ward
Lauren WardUpdated June 15, 2022
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Choosing between a business loan vs a credit card ultimately comes down to your company’s needs. Do you seek to get the money up front? Or are you looking to have something for emergency expenses? Are your money needs somewhere in-between?Answering these questions will help guide you to the choice that’s right for you.. For starters, credit cards are a type of revolving credit, which means that as long as you pay down the balance, you will continue to have access to the credit limit whenever you need it. While it’s important to know that business loans will save you money in interest–and also loans won’t hurt your score as much as a maxed out credit card.But there’s more to consider when it comes down to a business credit card vs a business loan.  

What Is a Business Credit Card Used for?

A business credit card can be used for just about anything— from purchasing inventory to making payments. Some credit cards have stipulations that you can’t use the card for personal expenses, but if you’re looking for a credit card for your business, this hopefully won’t be an issue.Some business owners use credit cards to increase their business’s credit score. This can be a wise move if you think you’ll need a business loan in the future and already know you won’t want to put your personal assets at risk. However, a business credit card can affect your personal credit if most or all of the credit limit is used and it’s not paid down at the end of the month. When this happens, your credit utilization ratio goes up, which in turn might lower your credit score.  Recommended: Comparing business and personal credit scores 

How to Choose a Business Credit Card

The advantages of a business credit card are many. Having a card with a high credit limit and a low APR is nice. You do need to ask yourself what you really want from your business credit card before you start searching. Are you interested in building business credit? Are you looking for perks like travel points or cash back?Do you need a high credit limit like those that often come with a business line of credit? Or are you short on time and looking for a no doc business line of credit?Business credit cards usually offer some kind of incentive to borrowers. With so many options on the market, narrow down what you want and go from there. Recommended: Choosing between a business line of credit or a business credit card  

Pros and Cons of a Business Credit Card

To choose between a business credit card vs a loan, you should have a solid understanding of the pros and cons of business credit first.Here’s what you should consider: 
Pros of Business Credit CardsCons of Business Credit Cards
Revolving creditHigher interest rates
May come with perksMay come with annual fees
Builds and strengthens your business’s credit scoreMay require a personal guarantee
Low minimum paymentsInterest rate and credit limit may change

What Is a Business Loan?

A business loan is a loan that a bank or lender gives to a company that the company agrees to pay back. The money is received in one lump sum, and the repayment term is often somewhere between 1 and 5 years. There are many types of business loans on the market. 
  • SBA loans
  • Term loans
  • Equipment loans
  • Merchant cash advances
  • Invoice financing
  • Personal loans for business
  • Commercial real estate loans
Some loans come with unique payment options, such as merchant cash advances and invoice financing. Others, like equipment loans, allow you to use the equipment/ machinery you purchase as collateral for the loan.  Businesses that have a strong net income and credit score are more likely to be able to take out the loan without the need of a personal guarantee from the business owner. If the business is new or has no-to-low credit, the business owner will likely have to sign a personal guarantee. For some borrowers, the possibility of business loans affecting their personal credit is too concerning. Understanding your business credit score before you begin the application process can help prepare you for what to expect. 

How to Choose a Business Loan

Ask yourself what kind of payment your business can take on. As discussed above, not every business loan has the same type of payment plan. Next, look into lender requirements. If your business is new, some lenders may want you to wait a year or two before you apply. Also take a look at asset requirements. Many lenders will also have some type of collateral requirement. If your business doesn’t have any assets yet, you may need to secure the loan with some personal assets. 

Pros and Cons of a Business Loan

Pros of a Business LoansCons of a Business Loan
Received in one lump sumLengthy application process
Lower interest ratesMay require a personal guarantee
Predictable monthly paymentsMay need collateral
Multiple types of loans available— some with unique payment and collateral requirementsCan take time to find out the application has been denied

Differences Between Business Credit Cards and Business Loans

There are many differences between a business credit card and business loan. Borrowers who are on the fence deciding between the two may find answers when studying the table below. 
Business Credit CardsBusiness Loans
Lower interest rates:X
Revolving credit:X
Come with perks and sign up bonuses:X
Received in one lump sum:X
Easier application process:X
Fixed monthly payments:X
May improve business’s credit score:
May require a personal guarantee:
Come with fees that are taken from the loan amount:X
Come with a variety of options:X

Business Credit Card vs. Business Loan: Which Is Easier to Get?

The continuing debate between getting a business loan vs. a business credit card inevitably comes down to time and ease. In this area, business credit cards take the prize because they are often easier to qualify for and faster to get. Because they’re often unsecured, lender’s don’t have to examine your company’s assets, which makes the process go by faster. 

What Option Is Best for Your Business: A Business Loan or a Business Credit Card?

Each company has different needs. However, ask yourself this question: Would you use a credit card’s entire credit limit very quickly? If the answer is yes, then a loan may be the right choice. The monthly payments will be higher, but you’ll pay a lot less in interest in the long run. If you are looking to take out a loan to establish a credit score for your company, then you should consider a credit card. Never take on unnecessary debt to simply improve a credit score. Debt should always have a purpose, and business debt should always expedite a company’s growth and improve its overall net.   Recommended: best business credit cards 

Things to Look out for in Business Loans and Business Credit Cards

Compare all of the following when making your choice:
  • Fees:
    • Loan origination fees
    • Annual credit card fee
  • Interest:
    • Loan APR
    • Credit card APR
  • Monthly payment amount
  • Total amount paid in interest using:
    • Loan calculator
    • Minimum payment credit card calculator

When to Use a Personal Credit Card Instead

If your business is new and you’re having trouble getting approved for a business credit card, you can use a personal credit card. In fact, the 2009 Credit Card Act may be a good reason to do so. This is because:
  • Personal credit cards come with limitations on interest rate and fee hikes
  • Personal credit cards aren’t allowed to do double cycle billing
These protections from the 2009 Credit Card Act unfortunately don’t apply to business credit cards. 

The Takeaway

Consider a business loan if the money will be for a single large expense that is going to grow your business’s revenue stream. The payments will be higher, but you won’t pay as much in interest. Consider a credit card if you have a lot of ongoing expenses and are looking to build your company’s credit history. Weighing credit card rates can take time, but we’ve partnered with lenders offering no-to-low credit cards for small businesses. Find one for your business so you can start building your company’s credit score. 
Photo credit: iStock/AndreyPopov

Frequently Asked Questions

Is it better to get a business loan or a business credit card?
Are business credit cards more business-friendly than business loans?
Does a business credit card offer rewards like a personal credit card?

About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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