Financing Your Business with a Credit Card and Loan

If you are ready to procure business financing, you have different options to consider. You can receive a loan from a bank, SBA, alternative lender, or use a business credit card. Credit cards and business loans provide quick access to funding but work differently. Due to this, you need to compare business loans and credit cards to see what option is right for your business at this time.

Credit Cards vs Business Loans

A business credit card is similar to a loan but is expensive. Credit cards allow you to borrow money from the bank with a promise to pay it back at the end of the billing cycle. If you pay your monthly bill in full, you will not be charged any interest and can borrow money for free. The interest charges are very high if you do not pay off your balance in full.

A loan has more requirements, and you will pay interest on the money you borrow but at a lower rate than a credit card APR. With loans, there is more money available to borrow and you have a longer period of time to repay them. The cost of doing business with a loan can be costly and time consuming if your credit history is not superb.

Pros of Credit Cards

No Restrictions

There are no restrictions on how you can use credit cards. An SBA microloan cannot be used to pay off debts or buy real estate. With a credit card, you can buy whatever you want.

Easy Approval Process

It is easy to get approved for a business loan. If you have a good credit score, you should not have any trouble getting a business credit card with a decent APR.

No Interest Charges

If you apply for a credit card, you will not have to pay for interest charges if you pay off the balance in full each month. Some credit cards have introductory periods with no APR on purchases and the months can vary.

Cons of Credit Cards

Expensive Financing

If you do not pay the with credit card off, it can be very expensive. The average interest rate for a business credit card is almost 15 percent. If your card does not have an APR introductory period, you could be paying a lot just for using it. This also does not include any annual fees.

Lower Financing Amounts

You will have less cash since credit card limit are smaller than the amounts that loan companies give out.

Pros of Business Loans

Payoff Term

You will have a longer time frame to pay off a loan in comparison to a credit card. With credit cards, you must pay the bank back in full every month to avoid interest charges. With a loan you will get a certain number of months to pay it and you can pay it back in installments.

Larger Funding Amounts

More cash is available for companies seeking business loans rather than business credit cards.

Lower Interest Rates

Loans almost always have lower interest rates than credit cards, SBA loans have rates as low as 4 percent.

Cons of Business Loans

Financing Restrictions

The SBA places restrictions on what their business loans can be used for. For example, the SBA 504 loan requires you to use it on purchases like real estate, you cannot use it to pay of debts. Still, this is not the case for all loans.

Collateral Is Required

Unlike an unsecured credit card, some lenders will require a form of collateral. If you do not want to put up collateral, you will need to research other unsecured business loans.