Business Line of Credit vs. Credit Card vs. Business Loan: Which One Should You Get?

Business Line of Credit vs. Credit Card vs. Business Loan: Which One Should You Get?

As a business owner, you are likely to borrow money or get a line of credit for your company — perhaps to increase your capital, to replenish your cash flow, or to invest in expanding your business operations.

Luckily, there are several types of credit lines and loans available specifically for business owners.

One of the more popular options for business owners is the business line of credit.

The business line of credit is a loan that gives you a predetermined amount of money. However, instead of getting the money in lumpsum, you can choose to draw the funds only when you need it.

There are several advantages of business line of credit, the best of which is you only pay interest on the money you borrowed from your predetermined credit line. For instance, if you are given a $100,000 line credit and you draw on $10,000 within the credit period, you only pay the interest on the $10,000. It’s similar to credit card, except a business line of credit is precisely that — credit that is available only for businesses and business owners. The credit can reach up to $200,000 to $300,000 for a year but can be as low as $5,000.

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Of course, the requirements here can be stringent, which is acceptable considering the sizable advantages of business line of credit. Requirements include lifespan of business, revenue and cash flow of the business, and even the credit score of the business’ owner. Still, it offers flexibility that no other credit lines or loans can provide.

Other options

There are, naturally, other options when you need to inject your business with cash or when you need funds for your operations.

A business credit card is pretty much like a credit card — except it works only for businesses and business owners. It’s also a revolving line of credit; you can draw the funds you need or use credit to purchase items or pay for bills and other expenses. It is easier to get a business credit card. And with its numerous promotions (like no collateral credit and zero interest rate promos), it is possible to save money while using a business credit card.

But it has very distinct disadvantages: the APR can be high (or higher than the other options), the extra fees can mount up and cost you a lot of money, and may have low credit limits.

A business loan is a type of loan offer only to businesses. It offers the cash in lump sum, so it gives you the funds you may need in full. The loan amount limit is also considerably higher; you can get millions in loans from a business loan. But it can be tougher to get a business loan than a business line of credit and a business credit card (for starters, your business should have strong revenue and good profitability to qualify). Approval takes a while as well and funding even longer.

Business loans work best for those in need of major one-time funding, maybe to pay off debts or to make large investments.

Needless to say, business line of credit offers flexibility that other loan options won’t be able to provide; the advantages of business line of credit make sure of that.

Different financing options offer different benefits. We have outlined here the advantages of business line of credit but understand it more at businesslineof.credit. You can also find more about business credit at https://www.ftc.gov/tips-advice/business-center/guidance/getting-business-credit.
What kind of business financing should you get? What are the advantages of business line of credit over other financing options? Find the answers at businesslineof.credit.

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