As a business owner, there may be times when you need to borrow money with a business loan or have expenses that you'd like to pay with a business credit card. However, you might not know exactly which one is right for you, especially if you have never used either of the options for your needs.

The Top Line

  • Business loans and business credit cards are two powerful financing tools for businesses that can help them fund operations, expansions, and purchases.
  • There are a variety of lenders and providers that will offer business loans and business credit cards.
  • Understanding the difference between business loans and business credit cards is essential to making sure that you use the right option for your business and your unique situation.
  • We'll provide you with an overview of each option and what they each intend to provide.
  • There is no clear-cut option that is best for everyone all at one time. The choice that you make will depend on the unique needs and challenges of your business.

What is a Business Loan?

Before you can make a decision as to whether a business loan or a business credit card is right for you, you must understand what each of these terms means. A business loan, as you might imagine, is a loan issued by a bank that is specifically for the purpose of helping a business with a financial need that they might have. This could be an expansion, inventory purchase, or financing to help fund operations in times of need.

Business loans generally have a longer payback period and lower interest than a credit card, but take longer to obtain due to the fact that you generally need to go through a bank or financial institution's application process.  You may need to offer up collateral for the loan before it will be approved.

What is a Business Credit Card?

A business credit card is the other option that you have available to you when you need financing for your business. Generally, business credit cards are options that you can use for short-term financing needs, such as buying minor equipment and supplies. It is not generally recommended to use for long-term needs or large expenditures, because of the high-interest rates that they will accrue over time. Business credit cards are easier to gain approval for and you can have access to a business credit card in a matter of days instead of weeks, like some business loans.

Which Option is Right for You?

Though it would be nice to have one option to turn to all the time regardless of your needs, it just doesn't work that way. If you are financing a large expansion or need a loan to get your business through hard times, a business loan is the right option for you. If you need some short-term access to capital to make a purchase of supplies or equipment, then a credit card could be the way to go. The option that you ultimately decide on will depend on your needs that are specific to your business based on the amount and timeframe you are looking at for repayment.