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Pros and Cons of a Business Credit Card vs. Business Loan

Written by Live Oak Bank

Pros and Cons of a Business Credit Card vs. Business Loan

For small business owners, access to adequate capital can make or break you. In fact, 38% of small businesses fail due to lack of capital. But not all capital is created equal — finding the right source of funding should be a top priority. There are various solutions for small business loans and we’re highlighting two common sources: business loans vs. business credit cards.


Business Loans

Pros

  • There are many options – from SBA loans to working capital, you can find a small business loan that matches your business goals and loan requirements.
  • With Live Oak’s Tidal working capital loans, you can receive funding as quickly as 2-3 business days and get up to $150k.
  • Lower interest rates when compared to a business credit card.
  • Many business loans offer reasonable repayment periods – some offer up to 25 years.
  • The amount of money available from a business loan far exceeds what you can secure with a business credit card. If you are looking to make large purchases, you can tap into more money with a small business loan.

Cons

  • More stringent qualifying requirements than a business credit card
  • Depending on what type of loan you apply for, it could be a longer process than applying for a credit card

 

Business Credit Cards

Pros

  • If you pay your balance in full each month, there is no interest payment.
  • Easy qualification, especially compared to a small business loan.
  • There is no collateral required to qualify for a credit card.
  • A business credit card provides revolving line of credit that you don’t have to continuously reapply for – a real plus to support the ups and downs of your cash flow
  • Depending on which credit card you choose, many have attractive rewards like cash back and airline miles
  • A business credit card can help you build credit which could help make you more “loan ready” in the future

Cons

  • Potential impacts on your personal credit – late payments can damage the guarantor’s personal credit score
  • Higher interest rates compared to small business loans. If a business does not pay off the balance each month, interest will accrue, and business credit cards can be costly.
  • Fewer protections against fraud – employees who have access to the business credit card could potentially use the card for their own purchases. Fraudsters can also steal credit card information and take advantage of it, which would be detrimental to your business.

 

  Traditional Business Loans Business Credit Cards
Loan Amount Typically, $5,000 to $5 million + On average $5,000 +
Average APR Range 4% to 13% (average rates)* 13% to 20% (varies on credit worthiness and product)
Loan Type Installment loan or line of credit Revolving line of credit
Repayment Set monthly payments divided up over a pre-specified term of anywhere from six months to 25 years (based on loan type) Low minimum monthly payments required with the ability to pay off your debt in full each month to avoid interest
Eligibility Good credit, sufficient business revenue and years in business Good personal credit and steady income
Collateral Required Sometimes No
Time To Approval On average, up to 30 days, varies based on complexity of the product Usually within seven days if not immediate
Other Benefits Option to apply for government-backed SBA loans Rewards programs, sign-up bonuses, rental car and trip insurance, purchase protection
*Actual rate may vary based on product type
Note: Live Oak Bank does not currently offer business credit card products.
 

Business credit cards must be used responsibly or else they could harm the long-term success of your small business. However, depending on the needs of your business, a business credit card could come in handy to keep your business going. Small business loans have many advantages but can be harder to qualify for. To make the best choice for your business, explore your options by determining your greatest business needs, and weigh the pros and cons.