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Line of Credit vs. Credit Card: Which Is Right for You?

Line of Credit vs. Credit Card: Which Is Right for You? ; As your small business grows, from time to time you may wish you had a reservoir of cash to draw on to cover unpredictable small needs or help tide you through seasonal lulls.
Ashley Kilroy
Ashley KilroyUpdated April 17, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
As your small business grows, from time to time you may wish you had a reservoir of cash to draw on to cover unpredictable small needs or help tide you through seasonal lulls. Fortunately, there are at least two options that fit the bill: a business line of credit or a business credit card. Both can help you cover immediate costs and can also boost your business’s credit history (provided you make your payments on time, of course). Which is the better choice? The answer depends on your company’s individual situation and needs.When you’re considering a business line of credit versus a credit card, there are a few differences it may be helpful to take into account. Let’s take a closer look.

What Is a Business Line of Credit?

A business line of credit, sometimes called a commercial line of credit, offers you a convenient, flexible way to cover expenses like working capital, bills, inventory, and other small, last-minute expenses.Unlike a small business loan, a line of credit gives you access to a defined amount of funding with a maximum set by the lender. You’re charged interest only for the amount you borrow, rather than on the entire amount available. Typically, you can withdraw funds from your credit line and repay as needed, as long as you don’t exceed the approved credit limit.Business lines of credit are highly flexible, so they may be useful for many types of business. If your business has seasonal ebbs and flows, a line of credit may help you maintain a healthy cash flow. But even if your business is growing steadily, it can be helpful to have a line of credit to tap into if you spot an unexpected opportunity you haven’t budgeted for but would  like to pursue. And if your lender reports to one of the major credit agencies, paying back what you owe on time can benefit your business’s credit rating and possibly your own.Recommended: Understanding Working Capital Lines of Credit

Pros of a Business Line of Credit

A business line of credit has many potential benefits. 
  • Easy access to funds Compared  to some other options, such as SBA loans, business lines of credit offer the borrower earlier access to money. Once you secure a line of credit, the money is basically on tap for you to withdraw and use as needed. 
  • You use (and pay interest on) only what you need A business line of credit is a good option for those who don’t have consistent costs to cover each season. If your expenses change from time to time, your withdrawals can reflect that. As long as you stay within your limit, you can use the funds at will
  • Flexibility The funding is not purpose-specific. You are free to spend the funds for business purposes more or less as you see fit, so using the credit line can be a flexible way to address any of your business’s needs.

Cons of a Business Line of Credit

While a line of credit can be beneficial, it may also have drawbacks in some situations.
  • Low maximums The sum of money you have available to you with a line of credit may be less than you’d get with a small business loan  — typically $10,000 to $1,000,000. A business line of credit may not provide enough capital for a large or expensive endeavor. 
  • Short terms A business line of credit also usually has shorter repayment terms than other options — typically three to 18 months. That means that if you withdraw a lot on your credit line, paying back what you borrowed can deplete your monthly funds quickly
  • Variable payment amounts The payment amount can fluctuate from month to month based on how much you owe. In addition, some credit lines come with variable interest rates. As a result, you may not have a fixed payment amount to budget for.
  • Impact on your personal credit Any missed payments may affect your personal credit history, especially if you’ve issued a personal guarantee to secure your business’s line of credit. 
Recommended: Understanding Working Capital Lines of Credit

What Is a Business Credit Card?

A business credit card is another way a company can get access to funds as needed and pay back only what’s borrowed (plus interest). Much as you would for a personal credit card, you apply with a credit card company, and, if approved, you receive a card (or cards) that you can use to make business-related purchases. You’re then expected to make regular payments until the money you’ve taken out is paid back, with interest. Like a line of credit, a credit card will also come with a maximum, beyond which you can’t withdraw more money.Business credit cards can be useful for many kinds of business, especially startups in which the owner is trying to separate his or her personal credit from the business’s credit. For some businesses, potential perks (like airline miles) may also be a plus.  Typically, credit cards have relatively low maximums and high interest rates, so it may be more practical to reserve them for incidental and miscellaneous expenses, rather than using them to cover payroll. Your best bet is to use a business credit card for expenses you can pay off each month.A business credit card can also be a way for your business to build its business credit (as long as you verify that the credit card company reports to one of the major commercial credit bureaus). Just keep in mind that, even if your business credit card is in your company’s name, it can potentially still affect your personal credit score. Some business credit card issuers will report late payments and serious delinquencies to consumer credit bureaus. 

Pros of a Business Credit Card

Business credit cards are not just for companies with big storefronts or businesses with multiple employees. Qualifying individuals who have a side hustle, such as photography or tutoring, can also benefit from them. Depending on what card you get, the benefits may vary, but they can include the following.
  • Rewards Unlike lines of credit, business credit cards may offer perks like sign-up bonuses and/or reward systems that give you things like airline miles for using your card.
  • Relatively easy to get Since credit card issuers often target small businesses, the cards are typically easily accessible. You may not need a business credit history of even a profit minimum. The main requirement is your personal credit history. So, even in situations where you don’t qualify for a business loan, you might still have the option of a business credit card.  
  • Flexibility Like a line of credit and unlike many other forms of funding, a business credit card will let you use the funds for any business expense.

Cons of a Business Credit Card

Business credit cards also have some drawbacks. Here are some you may want to consider.
  • High threshold for sign-up bonuses and/or rewards While the sign-up bonuses or cash back perks may be tempting, you usually have to spend a lot before you can earn them. 
  • Fees There may also be a complicated fee system tied to your card. Annual fees, transactional fees, and foreign currency purchasing fees can all be included in the card’s terms and conditions, depending on which card you choose. While lines of credit may also have fees, typically credit card fees are higher.
  • High APRs In general, business credit cards tend to have higher annual percentage rates (APRs) than many other kinds of funding, including lines of credit.
  • Payment problems could impact your personal credit score Business credit card issues will often report negative payment history to both the commercial and the consumer credit bureaus. If your business fails, the credit card company will likely view you as personally liable for unpaid debt, especially since many of them ask you for a personal guarantee.

Key Differences Between Line of Credit and Credit Card for Businesses

When it comes to evaluating a credit card versus a line of credit, you may see a lot of similarities. Both are types of revolving debt that can provide your business with the option to spend money up to a set limit. However, there are a number of key differences between them that you should be aware of. Understanding these differences can point you towards the right fit for you.


While in general both lines of credit and business credit cards provide smaller amounts of money than many other kinds of loans, business credit cards typically have lower maximums than business lines of credit. If you’re looking for a larger amount of money, a business line of credit might be a better bet.

Interest Rates

In general, interest rates tend to be lower for business lines of credit than for credit cards. If you think you’ll end up carrying a balance, that can be an important distinction, since you’ll likely end up paying more in interest on a credit card.


Business credit cards are typically unsecured, meaning you don’t have to provide any collateral to “secure” your debt. Business lines of credit, on the other hand, can be secured (require collateral) or unsecured (no collateral required). If you don’t have collateral to put up or don’t wish to put up collateral — and can’t qualify for an unsecured line of credit — you may want to consider whether a credit card could work for you. 

Annual Fees

Both business lines of credit and business credit cards generally come with annual ees. Typically, business credit cards charge higher annual fees than business lines of credit but that’s not always the case. Some banks offer business credit cards with no annual fees.

Cash Advances

You can usually use either a credit line or a credit card to access a cash advance. However, cash advances with a credit card tend to involve higher fees and a higher APRs than advances from a line of credit. Also, you can typically get a larger cash advance from a line of credit than you can from a credit card. 


Business credit cards may offer rewards for spending money on your card, while lines of credit typically don’t offer rewards. Different cards will have different types of rewards. You might find a business credit card that offers extra cash back for spending money in certain categories (like office supplies), for example, or one that offers extra points for business travel.While rewards can be appealing, some reward cards come with high annual fees, so you will want to make sure the rewards you’ll earn by using the card will more than make up for the fee.

The Takeaway

Business line of credit versus business credit card — which is best? No answer fits every company across the board. Both business lines of credit and business credit cards can be valuable credit tools. Credit lines generally offer higher credit limits and lower APRs but credit cards often come with valuable rewards and some have a 0% APR introductory period.Whichever loan product you’re leaning toward, it can be a good idea to shop around and compare different financing options to find the best fit for your business. With Lantern by SoFi’s lending marketplace, it’s easy to search for different types of financing (including business lines of credit and short-term business loans) all in one place. You only fill out one short application and don’t need to make any type of commitment.Let Lantern match you with the right financing solution for your small business.

About the Author

Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is a personal finance expert with years of experience in radio, newspapers, magazines, and online content. Her work has appeared on websites including Forbes and Yahoo Finance. Ashley writes on a variety of personal finance topics for SoFi, including student loans, taxes, and insurance.
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