Business Credit Cards vs. Lines of Credit: Which Is the Better Financing Option?

Most smaller organizations borrow funds at some point in time – either to stay afloat during tough times, or to expand operations when business is doing well. Two of the most common sources of finance are personal lines of credit and credit cards. These are similar in the sense that they are both revolving credit products. You can use and repay them as many times as you want. However, there are stark differences between these two sources of credit, and depending on various circumstances, one can prove to be more useful than the other. Here's a short description of both sources of finance to help you determine which is more ideal for your situation.

Lines of Credit

As you already know, with a line of credit (also known as credit line), you can borrow at your convenience up to a certain pre-determined limit. You pay interest only on the amount that you borrow – no usage means no payments. Lines of credit usually charge low interest rates. Given their flexible borrowing arrangements, they can be very useful for short-term and recurring financing needs. Lines of credit are a great source of finance if you need cash advances, as they allow you to withdraw up to 100% of the pre-approved limit. Additionally, they charge no cash advance fees or annual fees. So in case you need cash to pay rent, cover payroll, pay off other loans or pay taxes, lines of credit can be a good option.

Nevertheless, they do have certain drawbacks. Firstly, lines of credit have a certain set of qualification requirements. Along with requiring good personal and business credit histories, you also need to prove your company's ability to generate positive cash flow. Secondly, you may need to use hard assets such as your home, vehicle, inventory or even business equipment as collateral to obtain a secured line of credit. While unsecured lines of credit are also available, they tend to have higher interest rates and are more difficult to apply for. And the limits for unsecured loans tend to be pretty low.

Credit Cards

Simply put, business credit cards are far easier to obtain than credit lines. All you need to qualify for this source of financing is good credit. Unlike lines of credit, no proof of income or collateral is required. This means, if for some reason you are unable to make payments on the borrowed amount, the lender cannot seize your personal or business assets. Compared to credit lines, credit cards are far easier to apply for.

Credit cards are a great tool to finance purchases, as most offer rewards, such as cash back or free airline travel for spending. Although interest rates on credit cards are generally higher than lines of credit, they offer higher credit limits as well. Additionally, many cards offer 0% introductory rate promotions; i.e., they waive interest on your card balance for a specific period of time, typically six, twelve and sometimes eighteen months. So a borrower can use this time to get an interest-free loan – all he or she needs to do is make a purchase using the credit card, and then pay off the balance before the end of the introductory period.

Credit cards allow borrowers to withdraw only up to 20% of the pre-approved limit as cash advances. Unlike lines of credit, they charge cash advance fees. However, there are various strategies you can use to translate credit to cash.

If you'd like to learn more about this, give us a call. Moreover, while you can typically get $10,000, $20,000 and sometimes more on your own, with our help, we can get $50,000 – $250,000 guaranteed – and at 0% interest! Sound too good to be true? That's what many of our happy clients think. Give us a call at (800) 996-0270 and we'll explain the details.