Business Line of Credit vs. Credit Card: Key Differences for Small Businesses

If you’re a business owner, you may be familiar with the many ups and downs of running a business, and sometimes you just need a little extra financial flexibility. That’s when many owners think about using either a business line of credit or a business credit card. At first glance, they might seem pretty similar since both give you access to money when you need it, but they’re not quite the same, and they provide different kinds of funding.

A business line of credit is usually better for bigger expenses or keeping your cash flow steady, but a business credit card works well for smaller, everyday purchases and the bonus is that many come with rewards.

So let’s take a look at the key differences between each, so you can choose which works best for your business.

The Differences Between a Line of Credit and a Credit Card

Knowing the difference between a line of credit and a credit card can save you a lot of stress, and both give you access to funds, but they work in different ways. A line of credit usually offers higher limits and works like a revolving account where you borrow only what you need, repay it and then borrow again. You only pay interest on the amount you use, which makes it handy for covering unpredictable costs like seasonal slowdowns or vendor invoices.

A business credit card is built more for daily expenses, such as office supplies, subscriptions or travel. It comes with a billing cycle, minimum payments, and often rewards or cashback perks. Cards are much easier to apply for than a line of credit, but tend to have higher interest rates if balances carry over. Choosing the right tool depends on how and how much you intend to spend.^1,2

Business Loan vs. Business Credit Card

Are you debating between a business loan and vs. business credit card? It helps to think about your goals. A business loan is structured: you get a lump sum of money upfront, repay it in fixed installments, and usually use it for larger, long-term investments such as equipment, real estate or expansion projects. Because of this, loans are more predictable but less flexible.

A business credit card, though, works best for everyday purchases like travel, office supplies or advertising campaigns. It offers fast approval, spending rewards and expense tracking tools, but it comes with higher interest rates if you carry a balance.

Below is a table highlighting the differences between the two, so you can have a better understanding of what you may need.

Wise Business Could Help Your Company Save on Global Payments

Pros and Cons of a Business Line of Credit

A Business Line of Credit gives you the ability to draw funds as needed, so you can maintain cash flow and cover short-term costs without committing to a long-term loan. But like any financial tool, it has both advantages and drawbacks, and understanding them can help you decide if it fits your business needs. Below is a table summarizing the main pros and cons of a business line of credit.

Pros and Cons of a Business Credit Card

A Business Credit Card is definitely convenient in terms of managing day-to-day business expenses, or even if you’d like to track spending. It also provides access to a revolving line of credit tied to a credit limit, so you can cover purchases as they occur. However, like any financial product, there are benefits and drawbacks to consider. It’s essential to understand the pros and cons of a business credit card so you can determine if it aligns with your business needs and financial goals.

Final Thoughts

In conclusion, it’s absolutely crucial to understand the differences between a business line of credit and a business credit card, especially if you’re managing short-term or long-term finances. Lines of credit offer flexibility, so businesses can borrow only what’s needed and repay over time, which can help with cash flow gaps and recurring expenses.

Credit cards provide convenience for daily transactions, rewards, and a straightforward way to build or maintain your personal credit score, though they often have higher interest rates and cash advance fees. So we recommend weighing the pros and cons of a business line of credit and a credit card, so business owners can optimize borrowing costs and even make smarter funding decisions.^1,2,3

Save Time and Money On Overseas Payments With Wise Business

Wise Business can help you save big time on international payments.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in currencies.

Signing up to Wise Business allows access to BatchTransfer which you can use to pay up to 1000 invoices in one go. This is perfect for small businesses that are managing a global team, saving a ton of time and hassle when making payments.

Some key features of Wise Business include:

• Mid-market rate: Get the mid-market exchange rate with no hidden fees on international transfers

• Global Account: Send money to countries and hold multiple currencies, all in one place. You can also get major currency account details for a one-off fee to receive overseas payments like a local

• Access to BatchTransfer: Pay up to 1000 invoices in one click. Save time, money, and stress when you make 1000 payments in one click with BatchTransfer payments. Access to BatchTransfer is free with a Wise Business account

• Auto-conversions: Don't like the current currency exchange rate? Set your desired rate, and Wise sends the transfer the moment the rate is met

• Free invoicing tool: Generate and send professional invoices

• No minimum balance requirements or monthly fees: US-based businesses can open an account for free. Learn more about fees here

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Sources:

1. Business Line of Credit vs. Business Credit Cards | Bankrate
2. Business Line of Credit vs. Business Credit Card | Chase
3. Business Line of Credit vs. Credit Card | Capital One