You may have to get through a seasonal slump, purchase additional equipment, or take advantage of bulk stock offers. Business credit cards and small business loans are two top choices for injecting cash into your business. Both are great options, but it's important to understand that they serve different financial goals.
As a business owner, it might not always be clear what the benefits and pitfalls of these loan options are. When comparing a small business loan vs. a credit card, it's vital to the success of the business to choose the right one.
Choosing the right finance method can affect your future cash flow and whether your business can service the debt. Let's explore the difference between a business loan vs. a business credit card.
A small business loan is a medium-term loan that's repayable up to 10 years. You get paid a lump sum, which you can use for business operations. Small business loan amounts are typically higher than credit card limits and can go up to $5 million. To qualify for business loans offered by banks, you may need a credit score of 680 or higher.
A business loan is often used to service a long-term need. You may need one if you're:
There are several reasons business owners may want to opt for a small business loan:
Business loans may have some drawbacks:
A business credit card provides funding on a revolving basis. This means you're able to access funds when needed and not all in one go. Traditionally, business credit cards had to be settled every month. However, more lenders are allowing businesses to pay the minimum installment, then charge interest on the outstanding daily balance. Some business credit cards offer an interest-free period between 30 to 56 days. Business credit card limits rarely go higher than $50,000. You typically need a FICO score of 670 or higher to qualify.
Business credits cards are ideal for short-term cash flow constraints, such as:
Business credit cards can ease short-term cash constraints. Here are some other advantages:
Using a business card requires discipline and careful planning. Before you decide, be mindful of these drawbacks:
Before choosing a business loan or credit card, ask yourself a few questions:
Finding a finance option that works for you will depend on your business objectives. For long-term needs, a small business loan should be a good fit. Business credit cards better suit short-term needs such as stock purchases and travel. East West Bank is committed to supporting your business's financing needs by providing simplified loans, cash management tools, and supportive resources. If you're ready to take the next step, apply for a business loan today.
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