Managing a small business means dealing with expenses, both expected and unexpected. Whether it’s buying inventory, covering payroll, or handling an emergency, having quick access to funds is essential. Two of the most popular tools for this are a small business line of credit and a business credit card.
While both offer flexible business funding, they work differently. Understanding these differences can help you make smarter financial decisions and manage your cash flow effectively. In this blog, we’ll break down how each option works and help you decide which one suits your business best.
What Is a Small Business Line of Credit?
A small business line of credit gives you access to a set amount of money that you can draw from whenever needed. You only pay interest on the amount you use, not the full credit limit. Once you repay the borrowed funds, that amount becomes available again.
This type of funding is useful for covering ongoing or unexpected expenses. Many businesses use it as a safety net to ensure they can handle cash flow gaps, seasonal downturns, or delayed payments from customers.
What Is a Business Credit Card?
A business credit card works much like a personal credit card. You have a credit limit and can use the card to make purchases for your business. You’ll need to pay at least the minimum amount due each month, and any unpaid balance accrues interest.
Business credit cards are best for everyday expenses such as office supplies, travel costs, or utility bills. Some cards even offer cashback or rewards programs, making them appealing for regular use.
Key Differences at a Glance
Here’s a quick look at how small business lines of credit and business credit cards compare:
Feature
Small Business Line of Credit
Business Credit Card
Credit Limit
Varies, usually higher
Lower than a line of credit
Interest Charged On
Amount used
Unpaid balance
Repayment Flexibility
Very flexible
Monthly payments required
Rewards
Not typically
Often included
Use Case
Larger expenses, working capital
Daily business spending
Approval Time
1-2 weeks
A few days
This table helps illustrate why your choice depends on your business needs and how you manage cash flow.
When to Use a Small Business Line of Credit
Choose a small business line of credit when you need flexibility. It’s especially useful when you don’t know the exact amount of money you’ll need or when expenses come in waves.
Examples include seasonal businesses preparing for a busy period or service-based companies needing funds while waiting on client payments. Since you can withdraw funds as needed, it helps maintain control over your borrowing.
When to Use a Business Credit Card
Use a business credit card for regular, smaller purchases. If you’re buying office supplies, booking flights, or paying recurring bills, a credit card is convenient.
It also helps build your business credit score, especially if you pay your balance in full each month. Some cards even offer perks like travel insurance, purchase protection, and expense tracking.
Interest Rates and Fees
Interest rates for a small business line of credit are typically lower than those for a business credit card, but they can vary widely depending on your credit profile and lender. You may also encounter origination or maintenance fees.
Credit cards usually have higher APRs, especially if you carry a balance. However, some offer 0% introductory APR periods, which can be helpful if you plan to pay off your purchases quickly.
Cost Type
Small Business Line of Credit
Business Credit Card
APR Range
6% – 25%
13% – 30%
Fees
Origination, maintenance
Annual, late payment
Intro Offers
Rare
Often include 0% APR
Understanding your cost of capital is key to choosing the right funding.
Application and Qualification
Getting approved for a small business line of credit can be more involved. Lenders may require business bank statements, tax returns, and a credit check. It’s not unusual for the process to take a week or more.
On the other hand, business credit cards usually have a faster and easier application process. You can often apply online and receive a decision within minutes. However, the credit limit may be lower and based on your personal credit score.
Managing Cash Flow
Both tools can improve cash flow, but they do so differently. A small business line of credit lets you draw larger amounts and repay on your terms. That flexibility is valuable when income is unpredictable.
Business credit cards, while less flexible, help with daily cash needs and can be used anywhere credit cards are accepted. They also offer detailed spending records, which can help with budgeting and tax filing.
Building Business Credit
Using either a small business line of credit or business credit card responsibly can boost your business credit score. This opens doors to larger loans, better interest rates, and long-term growth.
Make sure your lender reports to commercial credit bureaus. Timely payments, low utilization, and responsible use all contribute to a positive credit history.
Which One Should You Choose?
If you need flexible business funding for ongoing operations or larger expenses, a small business line of credit is a solid choice. It gives you room to maneuver and only charges you for what you use.
If your goal is to manage daily purchases and earn rewards, a business credit card may be better. Just be mindful of interest rates and avoid carrying high balances whenever possible.
