Business Loan vs Credit Card: Which Financing Method Is Best?

Is lack of capital restricting your business’s growth? All businesses need capital to grow. When seeking capital, though, you might be wondering whether to choose a loan or credit card. Loans and credit cards are financing solutions. While you can use either of them to grow your business, they aren’t the same

Business Loan vs Credit Card: Which Financing Method Is Best?

The Basics of a Business Loan

A business loan is a financing method in which you borrow a lump sum of money from a lender. It’s considered a form of debt financing. When you obtain a business loan, you’ll take on debt. You’ll have to repay the principal of the business loan as well as all accrued interest by the end of the loan’s term.

The Basics of a Business Credit Card

A credit card is a financing method in which you open a revolving credit account with a lender. The lender will allow you to draw capital from this account, which you can use to pay for business-related products or services. Credit cards, however, don’t involve a lump sum of money. They are revolving credit accounts, meaning you can pay them down to continue using them.

Benefits of Using a Business Loan

When compared to using a credit card, a business loan will provide you with a larger amount of capital. Banks and alternative lenders offer business loans in different amounts. Whether you need $100,000 or $1 million, you can probably get a business loan.

Business loans also have lower interest rates than credit cards. They are both forms of debt financing. Whether you finance your business with a loan or credit card, you’ll have to pay interest. Fortunately, interest rates are typically lower for business loans than credit cards.

Benefits of Using a Credit Card

A credit card is arguably a more flexible financing solution. You don’t have to use it immediately. When you obtain a credit card, you’ll simply have the option of drawing funds from a revolving credit account. If your business doesn’t need any additional funds at the time, you don’t have to use the credit card.

The main benefit of using a credit card is that it’s revolving. Credit cards still have a maximum limit. You won’t be able to exceed this limit when drawing funds from the revolving credit account. When making payments towards the principle of the credit card, though, you’ll free up available credit on the account.

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