Business loan and credit cards remain the most popular sources of financing for business owners. Whether or not you should get a business credit card or a loan to meet your financing needs depends on several factors, including how you plan on using the proceeds, your credit score and the strength of your business finances. In this blog, we compare both financing options, including pros and cons and how to choose the best one for your business.
Business Loan vs Business Credit Card
Loans are a good choice if you’re looking to refinance existing debt, buy real estate or equipment, or make any type of large investment, as these loans provide a larger sum of money. They typically are repaid monthly at a fixed interest rate, making them a good option for financing large investments over a long time period.
These loans, however, are tougher to get approved for than business credit cards, may or may not require collateral and it can take a long time to get funded, depending on the lender. They’re best for more established businesses because you’ll likely need strong revenue and business finances to qualify.
Business credit cards are generally better suited to financing ongoing expenses and working capital. A credit line offers flexibility, and you pay interest only on what you borrow, up to your credit limit.
Business credit cards can carry many advantages, such as rewards for spending, 0% introductory annual percentage rates, sign-up bonuses and the ability to build business credit. However, these revolving lines of credit may come with high-interest costs and other fees.
Pros and Cons of a Business Loan
Pros
- Costs are lower: Traditional banks typically offer the lowest interest rates for businesses with strong finances. Online lenders may also charge lower rates than business credit cards.
- Long repayment terms are available: Small-business loan repayment terms vary by lender but can stretch as long as 25 years. This results in much more affordable monthly payments for businesses looking to make a major investment in their business.
Cons
- You may need collateral: Some loans require collateral assets such as equipment, inventory or real estate that the lender can seize if you fail to make payments.
- Qualifying is harder: Getting approved for a loan likely is tougher than for a business credit card.
Pros and Cons of Business Credit Cards
Pros
- You might get rewards or cashback: Just like regular credit cards, business credit cards may offer you rewards or cashback on purchases.
- No collateral is required: Unlike some loans, you won’t have to pledge assets as security for repayment of the credit card. So if for some reason you stopped making payments, the lender couldn’t seize business assets such as real estate, inventory or bank accounts.
- It’s easier to track business expenses: Using a business credit card can help you track your spending and separate your business and personal expenses, which makes it easier to take proper deductions and do your taxes.
Cons
- High balance can hurt your credit: Having too high a balance on business credit cards can hurt your credit scores.
- Fees can be high: Watch out for high annual fees, late payment fees, cash advance fees and other fees, such as those for being over the limit on the card.
Also Read:- Latest Government Medicine Tender – E-Procurement
In Summary
Apart from these, Oxyzo offers working capital finance for managing your working capital requirements and procurement of raw materials. The credit amount is up to two crores and the loan is granted with minimal documentation.
