Should I get a business credit card or a small business loan?

High-Quality Small Business Loans, business credit cards & Funding choices

Small- and medium-sized enterprises (SMEs) should carefully explore the broad and growing range of business capital programs, and understand which ones they qualify for.

Not all business funding solutions are made equal. Each is intended to serve a purpose, and there is a clear hierarchy. The most attractive small business loans,  business credit cards, lines of credit and other desirable solutions are available to low-risk businesses. Qualifying underwriting criteria are more stringent, which help to satisfy a lender or investor's primary concern,  to get their money back. Business cash flow can support the debt service, and there is adequate collateral in place to recover the debt in case of a default.

With up to 90% of loan applications denied, business owners should know what is required for approval before applying. Not just a waste of time, a bank loan application impact the owner's credit due to a hard pull inquiry. More than a few inquiries will often mean a 6 month waiting period before a new loan or credit facility will be entertained. This is because lenders will assume credit has been granted from an inquiry and will wait for the size to be visible and reported on a credit report(s)to be sure debt burden is known.  Business owners should determine the funding solution(s) they qualify for prior to applying. There are easy steps to follow, to reveal where you stand and or what needs to occur to access other programs.

Multiple solutions can be tailored to fit each unique business. More than 20 programs exist from unsecured business lines of credit, SBA loans, traditional bank loans,  off-balance sheet asset-based loans, lines of credit, term loans, revenue programs, merchant cash advance, and much more to provide custom results. If you're considering applying for a business credit card, small business loan or any other business credit you should complete plenty of research.

Advantages of Business Credit Cards

Be aware of the advantages associated with business credit cards to help determine whether they're a suitable fit. Some of the benefits include;

  • Extension of credit and ability to manage liquidity where payment for expenses, services, and products can be postponed by 30 days keeping valuable working capital in the business.
  • Unsecured credit cards enable flexible access to a revolving balance limit and do not have a set repayment term like a traditional loan. Manage well this credit facility provides access to emergency short-term funds for unforeseen situations, good or bad. The unsecured cards mean a business is not deleveraged with collateral or asset pledges, typically required for a small business loan.
  • Helps to organize business expenses in an efficient and logical manner, separate from personal expenses.
  • Help establish and develop a corporate credit history that is separate from your personal credit and the reliance on your personal guaranty.
  • Safeguard your business from all kinds of fraud where fees include insurance coverage that is not typically covered when using other payment processes.

Be aware that many business credit cards actually report to your personal credit profile and therefore cannot help build business credit through trade-line reporting to business bureaus.

Qualifying criteria differ for personal and business credit cards. As with all credit, you should understand the whats required before you apply. Be aware many business credit cards report to personal credit bureaus and not business bureaus so do help build business credit.

If you're looking for unsecured lines of credit for your up-and-coming business, there are few options that can compete with a business credit card. Many of these cards have 0% introductory rates for purchases and transfers, along with attractive cash back or travel reward programs.

Find out if you qualify for a “real” business credit card today without the need for a hard credit inquiry.

Small Businesses loan Benefits

Many small business owners qualify for and opt for business credit cards, enjoying clear benefits. A business credit card used responsibly is a strong qualifying step towards a small business loan approval. A business credit card, reporting to a business bureau establishes a tradeline and business credit history. A strong business credit profile opens the door to cost-effective business capital solutions otherwise not available. Building a profile separate from your personal profile as early as possible is highly advised.  If you're thinking about taking out a loan, or any other form of business funding you should be aware of the pros and cons.

Small business loans generally have longer-term durations with predetermined repayment schedule and end date.  Many programs are available, offered by traditional banks, conventional, non-conventional sources, private and alternative lenders. Terms vary, from as short as 12 months to over 25 years, aligned to the risks of the business and borrower. Structured with Interest and capital repayments, and interest only with a balloon repayment of the capital at the end date.

Small, to assist startups, aiding businesses in their earliest stages with equipment, working capital, inventory and capital expenditure. Often approved to help businesses interested in growth and in taking things to the next level. Loans can come in handy for small businesses trying to offer additional products or services. Typically with longer repayment periods, low-interest rates monthly repayments. The term length is consistent with the use of funds, and intended benefit.  With longer terms than credit cards of other typical revolving facilities the purpose of a loan and use of funds is clearly defined to help ensure assets and liabilities align, and debt service sensible. 

If you're thinking about funding options and best practices to capitalize your business, you should consider working with an independent commercial funding advisor, and or experienced business consultant. Loan officers and other funding advisors either at a bank or affiliated to a direct lender are not positioned to provide impartial advice. Indeed they are not well placed to determine and consult on program suitability, as the lender does do not provide them all

If you would like to learn more about business funding solutions, or other business topics we focus on through the business success platform please reach out to one of our consultants at Lavan Financial Group.