Business Loan vs. Business Credit Card

It’s an unfortunate statistic for entrepreneurs, but only about half of all new start-ups survive five years or more. Whether it’s because they didn’t complete a thorough analysis of their industry or simply didn’t have the demand they thought they would, wannabe small businesses that close up shop typically end up owing money to creditors and on credit cards alike.

Early on in the process, many small business owners need to figure out the best way to fund their needs.  The most popular options in doing this are to apply for a business loan or open up a business credit card.  I would recommend doing both, and here’s why.

Business Loan Benefits

While applying for a business loan at a traditional banking institution may be a waste of time, there are alternative solutions. Here are a few good reasons to take out a business loan instead of opening up a credit card:

  • Low interest rate. Compared to that of a credit card, business loans have very reasonable interest rates. Many small business loans offer interest rates between 5% - 10%, but with a credit card, you could be paying up to 25% in interest.
  • Future opportunities. Banks love it when businesses take out a loan and pay it back in a timely manner. This builds trust with the bank and shows them you are low-risk to lend to. Chances are the next time you need a loan, they’re likely to not just approve your application, but also give you better loan terms than the first loan.
  • Large credit line. Business credit cards, especially for new businesses, come with relatively low credit limits with low flexibility. Corporate credit cards will come with a much larger credit line, but a business loan can still offer much higher.

Small Business Credit Card Benefits

A business credit card can be a scary option for business owners because overspending and defaulting on the account can lead to big headaches, but it doesn’t have to be that way. Business credit cards have a variety of perks if you manage your account responsibly. Here are a few perks that come with business credit cards:

  • Grace period. A good grace period allows cardholders to essentially pay for an item interest-free for up to 25 days. This period varies by issuer, so make sure you read the terms and conditions.
  • Great perks and features. The best small business credit cards offer a variety of perks included cash back, up front bonuses, access to helpful programs and services, 0% introductory interest rates, and more.
  • Keep business purchases separate. Using one credit card for all business expenses makes tax time that much easier because your personal expenses are separate from your business expenses. As an added bonus, most business credit card accounts come with tools such as expense reporting and access to software like Quickbooks.

Since each opportunity above provides different benefits and perks, applying for both lines of credit (and keeping them in good standing) will help fund all of your business needs and help you build credit for your business.


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