Should I Apply for a Business Credit Card, a Line of Credit, or a Business Loan?
It’s no secret that running a successful business is difficult. Nobody sets out when starting a business thinking that they won’t find success. Nearly all entrepreneurs need a little financial assistance to help run and grow their enterprises at some point, whether it is to buy equipment, hire new employees, market products and services, or purchase more capital.
Luckily for business owners, there are multiple options available to them when it comes to finding the extra cash needed to help grow. Three of the most popular methods of securing funds are a business credit card, a business line of credit, and a business loan. Each of these borrowing methods allows the business owner to borrow the capital they need to help enhance the business’ growth.
Business Credit Cards
Business credit cards are arguably the easiest method to increase capital. They are typically easier to secure than a traditional business loan from a bank. One of the added benefits of having a business credit card is to start building a business credit profile, thus making it easy to qualify for a larger, more traditional business loan in the future easier. Additionally, business credit cards can be used for any expenses, such as purchasing inventory, paying bills, covering payroll in a pinch, or to pay for travel expenses. The best business credit cards typically offer either generous rewards (like cash back, or travel rewards) or lower interest rates.
One potential drawback from using a business credit card is that the interest rates can be higher than those of a business loan secured through a bank. Additionally, the personal credit score of the business owner heavily impacts the approval for a credit card.
Business Line of Credit
A business line of credit can be a good option when a business needs to access capital quickly. The most obvious benefit of securing a line of credit for a business is that interest is only charged on the amount of credit used. This added benefit allows the owner to only use credit when needed, pay it off, and use the credit again.
Generally, a line of credit comes with a higher limit than a business credit card. The line of credit also usually comes straight into the company’s bank account via a direct deposit ultimately making access to the needed funds simple.
Fortunately for business owners, there are more business loan options than ever before. A business can secure a loan through a traditional brick and mortar bank or via an online vendor. Business loans are generally used for larger purchases such as real estate or new equipment. As with many large loans, a business loan typically requires a form of collateral.
Business loans through banks can be as large of $5 million according to the Small Business Association, whereas business loans through an online vendor have a limit of $500,000. One massive advantage of securing a business loan through a bank is interest rates are locked at 5.75% for loans less than 7 years or 6% for loans longer than 7 years.
Deciding upon which type of credit best suits a business is a combination of looking at what the credit will be used for, the type of financing the business will qualify for and how long the business has been around. Ultimately, there are plenty of options for businesses looking to acquire capital; determining which type of financing makes the most sense is the first step.
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