Credit lines and credit cards: What is better for your business?

If your business needs flexible or short-term funding, you might consider using a commercial credit card or Commercial Credit LineTo determine which one is best for your business, please continue to read the detailed classification of these two financing solutions.

How does the credit line work?

One Commercial Credit Line Allows you to use the revolving credit line, which is the funds you can continue to use. Depending on the credit score of your business and the lender you choose, you can earn thousands or hundreds of thousands of dollars.

With a credit line, you only need to pay interest on the money you borrowed, and as long as you pay off the funds, you can use your funds over and over again. For example, if you use the full credit line of $10,000 to pay for inventory, once your balance goes to zero, you can use the full $10,000 again.

The interest rate of the credit line varies greatly; depending on the lender, you may end up paying 3% annual interest rate or close to 80%. At Fundbox, our goal is to keep interest rates low, From 4.66% to 8.99%.

What should you use your credit line for?

The credit limit applies to Short-term funding needs And regular operating expenses. You can use the credit line to pay for utility bills in the office, replenish goods, order inventory for busy seasons, Hire employees, Or pay unexpected expenses In crisis.

The credit line is particularly helpful for the following aspects Bridging the cash flow gap. Suppose you run a social media marketing agency and need to be paid this weekend, but your customers will not receive the payment until the end of the month. This is where you can use your credit limit.

Benefits of using a credit line

• Versatility: You can use your funds for many purposes.
• flexibility: You only pay interest on the money you borrow, so if you end up needing less cash, you can save money.
• Higher credit limit: You may not even need extra cash, but knowing that you can use it in a crisis can give you peace of mind.

Disadvantages of using credit lines

• Variable interest rate: Some credit lines come with variable interest rates-which means they will change as the market changes-which can make your payment budget more difficult.
• Extra cost: If you miss the payment, you may end up paying high fees. In addition, many credit lines come with monthly maintenance or withdrawal fees, which will increase over time.

How does a commercial credit card work?

Business credit card Give you a certain amount of credit every month for non-cash purchases.The credit limit you get approved depends on your personal credit score and the particular bank or credit union you applied for, but Average business credit card limit It’s about 50,000 US dollars.

Similar to a credit limit, Credit Loans Whether you can use a credit card depends on your monthly expenses and repayment amount.For example, if you spend $15,000 of your $30,000 credit line, and do not By resetting your balance to zero, you will only be able to use the remaining 15,000 USD in the next month.

To maintain your business credit card, you must pay a minimum monthly payment, which is a fixed fee or 1-3% of the total credit card balance.To pay if only The minimum monthly payment can provide you with more cash flow, but it is also an easy way to increase debt. For commercial credit cards, The average interest rate is about 17%, But if you pay off your credit card balance every month, you don’t need to pay interest.

What should you use a commercial credit card for?

You can use a commercial credit card to pay for daily expenses (such as utilities or supplies), and you know that you can pay off these expenses in full every month. Business credit cards are also suitable for non-cash purchases that do not require a large amount of funds.

For example, imagine you run a parking lot maintenance business.If you need to buy a new electric washing machine but don’t want to use the company’s cash flow, you can buy it with a commercial credit card equipment, And then either pay off at the end of the month, or gradually reduce costs over time.

Benefits of using a commercial credit card

• Versatility: You can use a commercial credit card to make many different purchases and expenditures.
• Commercial credit: Commercial credit cards give you the opportunity Build business credit, but if only If you pay off your credit card bill in full and on time every month. Improving your commercial credit score can make it easier for you to obtain commercial financing approval or obtain more favorable terms in the future.
• award: Many business credit cards offer sign-up rewards, purchase points or cash rewards.

Disadvantages of using commercial credit cards

• Potential debt: If you only pay the minimum monthly payment, you may be burdened with more debt than expected and you must consider Debt consolidation Offline.
• cost: Depending on the credit card, you may have to pay an annual maintenance fee.
• According to your personal credit score: To apply for a commercial credit card, you must use your Personal creditIf your score is not high, you may need to provide collateral to get the card approved.

Commercial credit lines and credit cards

To help you make a decision, please consider the following factors:

• Your financial needs: How much do you need and what do you need it for? Do you prefer a flexible amount of cash, or do you prefer to get credit every month?
• Your cash flow: How often will you have a cash flow gap?
• Your comfort for debt: How likely is it that you will pay off your credit card in full every month?
• Your goal: Do you want to build cash flow safe net Or start a major Growth plan? Do you want to build business credit or earn points and cash back for future business purchases?

If you need a lot of cash for business expenses or Growth initiatives, Or if you’re not sure how much money you need, a credit line may help. Not only are you more likely to get a higher limit through your credit line, you can also get a more affordable interest rate, which makes it easier for you to gradually repay your loan instead of repaying it all at once.

On the other hand, if you want to get rewards, or if you only need a small amount of money each month-and have cash to repay in full, then a business credit card may be a good solution.

Where can I get a commercial credit card

You can apply for a commercial credit card the way you like Commercial Banking Services, Local bank or credit union, or online banking.Make sure you Do your research And consider your goals before applying.

If you want a low interest rate, look for a credit card with an annual interest rate of 0%. If you want benefits and points, look for a card with good cash back offers and bonuses. Or, if you want to build your commercial credit, look for a basic commercial credit card with a lower spending limit to control yourself.

Where to get commercial credit

You can obtain commercial credit lines through banks or other online lenders.Every lender will have Different maturities, interest rates and qualifications For the credit limit, so don’t forget to ask for details.

If you are interested in flexible funding and direct pricing, please check out Fundbox’s credit limit. You can Apply If you are approved, it only takes a few minutes to deposit funds into your bank account on the next business day.

Fundbox and its affiliates do not provide tax, legal or accounting advice. This material is for reference only and is not intended to be provided and should not be used as a basis for tax, legal or accounting advice. Before conducting any transaction, you should consult your tax, legal and accounting advisors.