Why More Small Businesses Are Choosing Credit Cards Over Loans

Introduction

Here is something that does not get said enough in financial content: the way most small businesses actually fund themselves looks nothing like the way the financial system says they should.

The textbook version is a bank loan. The real version, according to data from 1.6 million small businesses analyzed by the National Bureau of Economic Research, is a business credit card. In data collected between Q1 2023 and Q2 2024 and published in 2025, 55% of surveyed small businesses used a business credit card as a financing source in the prior 12 months. Only 26% took out a loan.^[1]

That gap makes more sense when you understand who is actually building businesses in America. According to the SBA Office of Advocacy’s February 2026 report, 82.3% of U.S. small businesses have no employees at all.^[7] Solo operators, freelancers, independent contractors, and sole proprietors make up the overwhelming majority of American entrepreneurship. For most of them, a traditional business loan — which typically requires years in business, documented revenue, and often collateral — is not a realistic first option. A business credit card, which primarily evaluates personal credit and requires a personal guarantee, is often the most accessible path available.

The Federal Reserve’s 2026 Report on Employer Firms confirmed that 86% of employer firms use financing on a regular basis, with credit cards among the most widely used products across businesses of all sizes.^[2] The shift is not a trend. It is a structural change in how American businesses access capital.

How We Got Here

The shift toward credit cards did not happen overnight. It accelerated through a specific set of circumstances and stuck.

Between 2020 and April 2022, average monthly credit card payments among small businesses rose from $10,000 to $24,000 per month — more than doubling in under two years. That comes from NBER research analyzing QuickBooks transaction activity published in 2025.^[1] The driver was a combination of pandemic cash flow pressure and constrained traditional lending — businesses needed capital fast and credit cards were one of the few tools that could move at that speed.

Then the Federal Reserve raised interest rates between March 2022 and May 2023. During that window, business credit card interest payments rose 60% and delinquencies reached 2.8%.^[1] That period drew a clear line between two types of credit card users. Businesses that used cards during 0% introductory APR periods and paid down balances before interest applied fared significantly better than those carrying revolving balances without a strategy. The tool was the same. The approach made all the difference.

By 2023, average monthly spend had settled at $13,000 per card according to Ramp’s 2026 analysis.^[3] The elevated spending of 2021 and 2022 is not the baseline anymore. But the underlying behavior — using credit cards as a primary financing tool — has held.

Average Monthly Small Business Credit Card Payments (2020–2023)

Monthly credit card payments more than doubled in under two years

Sources: NBER, Credit Cards and the Financing of Small Businesses, 2025; Ramp Business Credit Card Statistics, 2026

The Cash Flow Reality Behind the Data

Credit cards did not become one of the most common small business financing tools because owners suddenly preferred cards over loans. They became useful because business expenses rarely move on a lender’s timeline.

Payroll, inventory, vendor deposits, repairs, equipment, advertising, and contractor payments often come due before revenue catches up. That timing gap is where many owners need flexible capital, not necessarily a long-term loan.

The JPMorgan Chase Institute analyzed over 470 million transactions across 597,000 small businesses and found that the median small business holds just 27 days of cash in reserve.^[10] Restaurants held a median of 16 cash buffer days, retail businesses held 19 days, personal services held 21 days, and high-tech manufacturing held 32 days.^[10]

That does not automatically mean every business is on the edge of failure. It means timing matters. A business can be healthy, growing, and still need short-term access to capital while revenue, receivables, or seasonal demand catches up.

That timing reality helps explain why business credit cards have become more central to small business financing. Used intentionally, they can help owners cover timing gaps, preserve cash, and move quickly on operational needs without turning short-term flexibility into long-term interest expense.

For a deeper look at how cash flow challenges connect to business survival, see our related article on Small Business Failure Statistics and the Cash Flow Crisis.

The Bank Situation

Traditional lenders are not irrelevant. For established businesses with strong revenue, organized financials, collateral, and time to wait, a bank loan can still make sense. The issue is that many small businesses do not fit neatly into that box, especially newer businesses, solo operators, and owners with limited business credit history.

Bank lending standards remained tight through 2024 and 2025. The Federal Reserve’s January 2026 Senior Loan Officer Opinion Survey showed some moderation, but the April 2026 SLOOS confirmed banks continued reporting tighter standards for commercial loans to firms of all sizes.^[6]

The Federal Reserve’s 2025 Report on Employer Firms, reflecting 2024 survey data, found that among firms denied financing, 41% cited too much existing debt as the reason — up from 22% in 2021.^[5] The 2025 Federal Reserve Report on Nonemployer Firms found that 45% of nonemployer businesses denied funding were turned down because of a low credit score.^[8]

That matters because most U.S. small businesses are nonemployer firms. For many of those owners, the business may not yet have years of revenue history, collateral, or a fully built business credit file. Personal credit often becomes the bridge between where the business is now and the capital it needs next.

Online lenders have filled some of that gap, but the experience can be costly. According to the Federal Reserve’s 2026 Report on Employer Firms, 60% of online lender borrowers reported higher-than-expected costs, while high interest rates and unfavorable repayment terms were among the most common challenges cited.^[2] Separately, 75% of online lender applicants reported challenges including high interest rates and unfavorable repayment terms.^[6]

Business credit cards occupy a different lane. They are not a replacement for every loan, and they are not risk-free. But for qualified applicants, they can offer faster access, no collateral requirement, revolving availability, and promotional APR periods that may make them more flexible than many short-term financing products when used strategically.

Why Traditional and Alternative Lending Is Losing Ground

Key challenges reported by small business owners seeking financing

Sources: Federal Reserve Banks, 2026 Report on Employer Firms; Nav Small Business Credit Statistics, 2026

How Small Businesses Are Funding Themselves Now

The numbers confirm what many owners are already experiencing. In data collected between Q1 2023 and Q2 2024, 55% of surveyed small businesses used a business credit card as a financing source in the prior 12 months, compared to 27% that used lines of credit and 26% that used loans.^[1]

The Federal Reserve’s 2026 Report on Employer Firms found that 86% of all employer firms use financing on a regular basis.^[2] The most common reasons businesses sought financing in 2025 were to meet operating expenses (56%) and to pursue expansion or a new opportunity (46%).^[2] Credit cards serve both of those needs in a way that traditional loans often cannot — they are faster, require no collateral, and for qualified applicants can come with a 0% introductory APR window that changes the cost calculation entirely.

How Small Businesses Are Funding Themselves

Share of surveyed small businesses using each financing source in the prior 12 months

Sources: NBER, Credit Cards and the Financing of Small Businesses, 2025 (data Q1 2023–Q2 2024); Federal Reserve Small Business Credit Survey, 2026

What Credit Card Access Actually Looks Like Right Now

There is a benchmark figure that circulates widely in discussions about business credit card limits — $56,100, from Experian data. It is worth being clear about where that number comes from.

That figure originates from Experian data most widely published between 2016 and 2018 and has been repeated in financial articles since.^[4] It reflects an average across all business credit card accounts including large, established companies with long credit histories. It is not what a newer or smaller business should expect when applying today.

In Fund&Grow’s experience working with over 35,000 clients, many new applicants see initial limits in the $10,000 to $30,000 range per card, depending on the issuer, personal credit profile, income, business revenue, existing debt, and other underwriting factors. The path to meaningful capital is not one application — it is a portfolio of cards built intentionally over time. For a breakdown of which cards are worth considering, see The Best Business Credit Cards.

What that cost context makes clear is that carrying a revolving balance at today’s rates — approximately 21% APR across all credit card accounts as of early 2026 according to the Federal Reserve — can become expensive quickly.^[12] The value of business credit cards often depends on how well owners use the 0% introductory APR window, manage repayment, and avoid letting short-term flexibility turn into long-term interest expense.

Business Credit Card Access at a Glance

What business owners can realistically expect when applying in 2025–2026

Sources: Experian via WalletHub, 2026; Ramp, 2026; Federal Reserve G.19 Consumer Credit Report, January 2026

Credit Cards vs. Loans — The Honest Comparison

The three differences that matter most in practice are speed, collateral, and the introductory APR window.

Speed. A loan application can take weeks or months. A credit card decision typically comes back in days to weeks, which gives owners a faster option when timing matters. The Federal Reserve’s 2026 data showing 60% of online lender borrowers reported cost surprises confirms how often owners trade cost certainty for speed.^[2]

Collateral. Most business loans require you to pledge something — equipment, inventory, real estate. Business credit cards typically do not. For owners who do not have assets to pledge or do not want to risk the ones they have, that is a meaningful structural advantage.

The introductory APR window. Traditional loans charge interest from day one at rates that have risen meaningfully over the past decade. Business credit cards that offer 0% introductory APR periods — typically six to eighteen months when available — may allow qualified applicants to carry qualifying balances without interest during the promotional period, provided required payments are made and the balance is paid before the promotional period ends. Fees and terms vary by issuer. With average credit card APRs across all accounts sitting around 21% in early 2026, the value of a well-timed 0% window has never been clearer.^[12]

Business Credit Cards vs. Traditional Loans

A side-by-side comparison of the factors that matter most for small business owners

Analysis compiled by Fund&Grow, June 2026.

Your Credit Profile Is More Than a Score

The data consistently shows that credit risk is one of the most important factors in whether a business can access capital. The Federal Reserve’s 2026 report confirms that small banks fully approved 57% of applicants — the highest rate of any lender type.^[2] Where you apply and how your full profile looks determines the outcome more than any single number.

A credit score is a snapshot. What lenders and card issuers actually evaluate is everything behind it. The factors that shape a business credit card application include the score but go well beyond it:

Two business owners with the same credit score can get very different results depending on what the rest of the profile looks like and how their applications are positioned. Fund&Grow generally recommends a personal credit score of 700 or above as a starting point, though credit score is one of several profile factors evaluated during the initial review.

The Hard Inquiry Question

One of the most common concerns when considering multiple credit card applications is what happens to a credit score. According to Experian and FICO research, a single hard inquiry typically drops a FICO Score by fewer than five points, and the impact usually resolves within a few months provided the rest of the profile stays healthy.^[9]

The important distinction is that credit card applications do not benefit from the rate-shopping window that applies to mortgage or auto loan inquiries. Each credit card application counts as a separate inquiry. That is why sequencing and timing matters — spacing applications thoughtfully from the strongest possible starting position minimizes cumulative impact and maximizes the limits available at each step.

About the Author

Ari Page is the Founder and CEO of Fund&Grow, where he has spent nearly two decades helping business owners access unsecured business credit cards with 0% introductory APR periods. Since starting the company in 2007, Ari has worked with thousands of entrepreneurs, investors, and small business owners across the country, helping clients secure over $2 billion in total business funding. He is also the author of Fund&Grow: Easy & Affordable Ways to Get Money for Your Business and regularly shares insight on entrepreneurship, business strategy, and what it actually takes to build a financially resilient business.

Copyright © 2026 Fund&Grow. All rights reserved. This article contains original Fund&Grow analysis and commentary based on cited public and third-party data sources. Underlying data remains attributable to the original sources cited.