Trying to decide between opting for a business credit card and a business line of credit? Weigh the pros and cons of both first.

As a small business owner, it is vital for you to possess a little extra capital to ensure the smooth functioning of your business venture. And with an ever-increasing number of options available for you to do so, like business loans, credit cards, and lines of credit, it becomes imperative to know the pros and cons of each type, so that you are better equipped to select the one most conducive to your needs. Since small business credit cards and business lines of credit are the most popular types of unsecured loans, it is a good idea to know about them in detail.

What Is A Small Business Credit Card?

A small business credit card is usually similar to a personal credit card. It is an unsecured loan, and is issued on the basis of your personal credit score. Like your personal credit card, you can avoid interest charges by paying off your statement balance in full on or before the end of your monthly cycle. Otherwise, you are liable to incur interest charges on your daily balance.

You are entitled to receive rewards for your business expenses in the form of cashback, miles, points, etc. This can help you when purchasing office equipment, negotiating with telecom service providers, and advertisers. Additionally, your business credit card may offer purchase protection and travel insurance benefits.

What is a business line of credit?

A business line of credit can be acquired from any financing company or an online provider. It is an unsecured loan which, once sanctioned, can help you draw from it by making a direct deposit to your checking account, or through a debit card associated with the account.

In this type of loan, your minimum monthly payment will be solely for interest charges based on your account’s average daily balance. Since it is a revolving loan, you can pay your balance and borrow it back as many times as you wish.

Which is the better option: A small business credit card or a business line of credit?

A small business credit card and a business line of credit are both revolving loans, which means they come with a pre-set spending limit. You can choose to spend up to that limit. Once you repay the amount you have spent, you have the option to re-spend the same amount. This process can go on as many times as you want.

Apart from this similarity, there are various differences between a small business credit card and a business line of credit, knowing which can help you choose your preferred option:

  1. Interest Rates

Credit cards charge high interest rates, often around 18%. Additionally, they offer the option of repaying a minimum monthly payment, which might look attractive at first, but can result in an endless and often highly expensive ‘cycle of debt’.

A business line of credit charges nominal interest rates, usually around the same as a business loan, which start from 16%.

  1. Disbursal of Funds

Even after your credit card request is accepted, it will usually take a couple of weeks for the credit card company to print and provide the card.

A business line of credit allows you access to your funds within a day or two after approval.

  1. Repayment Ease

You may find that the low repayment time on a credit card is simply locking you into debt. The longer tenor of a business line of credit will allow you to pay your EMIs in a more planned and easier manner.

  1. The Eligibility Process

If you are applying for a credit card, the institution extending it to you will scrutinize your credit reports and scores in depth.

With a business line of credit, however, lenders will also take into account your business and its prospects and may grant you a loan even if you have a mediocre credit score.

Also Read : Why A Business Line Of Credit May Be Better For You Than A Business Term Loan

In the end, it is up to you to decide which method suits you needs the most. A business Line of Credit from Bajaj Finserv comes with several attractive features, including online account access and tons of preapproved offers.

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