There are a few differences between a business line of credit and a credit card. Business lines of credit typically have stricter requirements, but have a higher credit limit. Because of this, business lines of credit are often used for big purchases and credit cards for frequent everyday purchases.
Business Line of Credit vs Credit Card FAQs
A business line of credit offers more flexibility and control over your finances than a traditional credit card. With a business line of credit, you can draw money as needed up to an approved limit and only pay interest on the amount you have borrowed, whereas, with a credit card, you must pay interest on all available funds. Additionally, some lenders allow businesses to repay the line of credit faster without penalty which is not typically the case with credit cards.
The costs associated with obtaining a business line of credit may vary depending on the lender and other factors, but generally speaking, they tend to be higher than the costs associated with a credit card. The approval process may also be more rigorous for a business line of credit, as lenders usually require financial statements or tax returns to assess creditworthiness.
The time frame for approval typically varies depending upon the lender, however, on average it takes longer to obtain approval for a business line of credit compared to that a regular credit card. This is due to the additional documentation and assessment required by most lenders before approving an application.
If you default on paying back a business line of credit, it can have serious implications for your personal and business finances. You may be subject to additional fees, fines, and higher interest rates as well as legal action from the lender. Conversely, in the event of defaulting on a regular credit card, the consequences are typically not as severe but could still include late payment fees, an increase in the interest rate, or even cancellation of your account.
It is important to create and maintain a budget when using either form of borrowing so that you can ensure that payments are made on time, in full, and within the agreed-upon terms. Additionally, consider taking out an automatic payment plan if possible so that you can avoid any potential late fees. Finally, ensure that you have a clear understanding of both the interest rate and repayment period for each loan to help manage your cash flow more effectively.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
