When to Use a Small Business Line of Credit vs. Credit Cards

Both small business lines of credit and credit cards can be useful tools for managing your business’s finances, but they have different features and are suited to different situations.

A small business line of credit is a revolving credit facility that allows you to access a certain amount of funds on an ongoing basis, up to a predetermined credit limit. You can use the funds for any business-related purpose, and you only pay interest on the amount you borrow. A line of credit is best suited for ongoing or recurring expenses, such as inventory purchases, payroll, or marketing campaigns.

Credit cards, on the other hand, are a type of revolving credit that allows you to make purchases and pay them off over time, often with the option to earn rewards or cashback on your spending. Credit cards are best suited for smaller, one-time purchases, such as office supplies, travel expenses, or small equipment purchases.

When deciding whether to use a small business line of credit or credit cards, consider the following:

  1. Purpose: Consider the purpose of your borrowing. If you need ongoing or recurring access to funds, a line of credit may be a better option. If you need to make a one-time purchase, a credit card may be more appropriate.

  2. Cost: Compare the interest rates and fees for both options. A line of credit may have a lower interest rate than a credit card, but it may also have higher fees. Be sure to calculate the total cost of borrowing for each option.

  3. Rewards: If you value rewards or cashback, a credit card may be a better option. However, be sure to consider the cost of interest and fees when comparing the value of the rewards.

  4. Credit score: Your credit score may affect your ability to qualify for a line of credit or credit card, as well as the interest rate and credit limit you receive. Be sure to check your credit score and credit history before applying for either option.

Ultimately, the decision to use a small business line of credit or credit card will depend on your business’s specific needs and financial situation. Be sure to consider all of the factors above and consult with a financial advisor or lender to determine the best option for your business.