All about the best 2021 commercial lines of credit – Forbes Advisor
While a business line of credit works best for certain types of expenses, other forms of financing may work better in certain scenarios.
Business line of credit or small business loan
Unlike a business line of credit, lenders provide small business loans in the form of a lump sum of cash. Once you have received the funds, you must repay the loan, including interest on the entire balance, in fixed installments over a set period, usually between six months and 25 years.
Small business loans are best for making big purchases and covering the cost of doing business, while business lines of credit come in handy as a rainy day fund.
Business line of credit vs. business credit card
Similar to a business line of credit, a credit card provider issues you a credit limit from which you can borrow as needed. However, business credit cards generally have much smaller credit limits. Therefore, credit cards are better suited for small daily business expenses.
Business credit cards also have different qualification requirements. When you apply for a business credit card, your provider usually focuses on your personal credit score, which makes it a great option for startup owners or sole proprietors without a lot of business history.
However, business credit cards often carry higher interest rates than business lines of credit. But if your credit is good to excellent, you can take advantage of an interest-free promotional period on purchases and / or balance transfers. As long as you pay off your balance in full before the period expires, you can avoid all interest charges.