As a business owner, you understand firsthand how much it costs just to keep the doors open. From buying supplies to making rent, business owners typically have a lot of bills to pay. Many small businesses, especially when they're in growth mode, don't have enough cash on hand to pay all their bills each month. Because of this, small-business owners typically rely on business credit cards and business loans for financing. There are pros and cons to business credit cards and business loans, and it can be overwhelming for a small-business owner to choose between them. Here's how to decide between a business credit card and a loan, depending on your situation.

Small-Business Loans: Advantages and Disadvantages

There are situations where a small-business loan might be the right solution for a business owner, but in some cases they're not ideal. Here are some advantages and disadvantages to a small-business loan. 


When it comes to accessing working capital, getting a business loan is clearly ideal. Here's why.

  • Higher loan amounts: If you're refinancing bad business debt, funding an expansion or fronting an expensive project such as a real estate development, you may need to access millions of dollars. In this case, a loan is the way to go. Small Business Administration (SBA) loans are available up to $5.5 million, which is much higher than the typical business credit card limit. 
  • Installment credit: With the set terms of installment credit, it's easy for small-business owners to calculate their monthly payments and the expected life of the loan. Simplified bookkeeping can make it easier to manage your finances. Plus, potential investors and buyers can get a better view of your overall financial situation. 
  • Lower interest rate: The SBA's interest rates are calculated as the prime rate plus a certain margin. Depending on the type of loan, that margin could start as low as 2.25% and range up to 8.5%. Business loans from traditional lenders typically come with interest rates between 2% and 6%, depending on the size of the lending institution and your business's credit history. 


A business loan isn't always the right choice. Here are some downsides to business loans that are important to consider.

  • Hard to qualify: Lending to small businesses, especially new ones, is risky. Historical data shows about 10% of small businesses fail in their first year — a ratio that was consistent during the economic recovery of 2009 and in substantially better times in 2014, suggesting it's a constant despite the economy. In order to qualify for a business loan, at a minimum you'll have to provide financial statements for the business. Lenders often consider the business owner's personal finances as well, so they may check your personal credit history. They could also ask for some form of collateral, such as the business itself or the equipment your business uses, such as computers or machinery. 
  • Longer to fund: Because there's a lot to review, the approval process can take weeks. This is not ideal if you need money immediately. For example, if you own a landscaping business and the trailer you use to transport equipment breaks down, you'll likely need to pay for repairs immediately so your employees can continue to get to scheduled jobs. In this case, a small-business credit card could help you access funds faster.
  • Requires more of your time: Applying for a business loan is typically an involved process that requires you to visit a branch or lender in person. Only 22.8% of large banks and 11.2% of small banks allow business borrowers to apply online. 

Small-Business Credit Cards: Advantages and Disadvantages

A small-business credit card could be a savvy financial move for a business owner. Here's how to know which expenses are best to put on a credit card. 


In some circumstances, a business credit card is the best option for your business. Here's why getting a business credit card could be a savvy move.

  • Build corporate credit: If you have the cash to pay for expenses such as supplies, you can purchase them using a credit card and then immediately pay off the balance. The on-time payment and low revolving debt balance can positively impact your company's credit rating. This could benefit you in the future if you decide to get a business loan. It's better to start building credit now so you can easily qualify for a loan if you ever need access to more funds.
  • Earn rewards: Depending on the type of business credit card you get, you could accumulate cash-back rewards or points and use them to boost your business. For example, say your restaurant purchases $5,000 worth of food a week and your business credit card provides 2% cash back. You earn $400 a month, which can help you purchase more supplies. It's best to compare offers to find a way to maximize the rewards for your company. 
  • Quick approval: While it may take you weeks to get approved for a business loan, card issuers typically approve business credit card applications instantly or within 10 days. It may take another 10 days to get the card in the mail. 


Business credit cards aren't for everyone. Here are some cons to using a business credit card to fund your expenses. 

  • High interest rate: Business credit cards typically have higher interest rates than loans because they're unsecured. That means you could end up with significant interest costs if you don't pay off your credit card balance each month, which can significantly impact your business profits. If you are lured in by a 0% APR offer, ask how the interest rate will change after the introductory period. It may increase to 19% or higher
  • Require personal credit check: Despite the fact that corporate credit is assessed differently than personal credit, qualifying for a business credit card almost always requires that the business owner consents to a credit check. This will show as a hard credit inquiry on your personal credit report, which could negatively impact your personal credit score. That's not ideal if you're also trying to qualify for a major personal loan such as a mortgage.
  • Smaller limit: Most business credit cards have a limit of around $50,000. That might not be enough for bigger purchases such as expensive equipment, licensing fees or property.

Business credit cards and business loans are both useful financial tools for a small-business owner. However, the best one for you depends on your situation. To decide between them, consider how much money you need and how quickly you need to access the funds.

About the Author(s)

 Ting  Pen

Ting Pen is a ValuePenguin Co-Founder. She previously evaluated corporate mergers and acquisitions as a Financial Analyst at Citigroup. Her experience in financial services combined with her entrepreneurial spirit allowed for her to start her own fin-tech company. Her passions lie in problem solving, growth, and travel.

Torn Between a Business Credit Card or Loan? Consider These Financing Tips First