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When comparing a business line of credit vs. business credit card, many business owners lean toward credit lines due to their lower interest rates and greater flexibility. Both financing options can support your cash flow, but they serve different purposes depending on how and when you plan to use them.
A business line of credit typically offers higher limits, lower interest rates, and more control over repayment, making it an ideal option for managing ongoing expenses. A business credit card, however, may be more suitable for frequent smaller purchases, employee expenses, or situations where rewards and perks matter.
This article compares key factors side by side, including credit limits, interest rates, repayment terms, and fees, so small business owners can confidently choose the financing tool that fits their business needs. Whether you're scaling operations or smoothing out seasonal cash flow, this guide will help you make informed, practical financial decisions.
What Is a Business Line of Credit?
A business line of credit is a type of revolving credit financing that gives a company ongoing access to funds up to a predetermined credit line, drawing only the amount needed. As you repay, your available credit replenishes, allowing for repeated use, much like a business credit card.
How it works:
The lender approves a maximum limit (e.g., $50,000) that the business can draw against.
You draw funds as needed, and you only pay interest on that borrowed portion, not on the unused credit.
As you repay principal and interest, the credit becomes available again for future draws (so long as you're within the limit).
Because it's a revolving facility, you don't get a lump sum disbursement — you access funds over time.
This contrasts with a term loan, which provides a one-time lump sum and requires fixed payments until the balance is zero. A line of credit often carries lower interest rates than credit cards or unsecured term loans, especially if secured by collateral.
Eligibility and Requirements
To qualify for a business line of credit, lenders typically evaluate:
Monthly or annual revenue and cash flow. Online lenders like Clarify require at least $10,000 in monthly revenue to ensure you can repay the debt.
Time in business. While some lenders require one to two years, Clarify works with businesses that have been operating for at least six months.
Business bank accounts and financial statements. Lenders want visibility into how you operate.
Minimum credit score. Many lenders look for strong business or personal credit (e.g., 600s to 700s), while Clarify requires credit scores of 550 or higher.
Collateral or guarantees. Some lines are secured, requiring assets (e.g., equipment, inventory, real estate) as collateral. Secured lines of credit often carry lower rates than unsecured lines.
Difference From a Traditional Loan
While both provide access to capital, a business line of credit functions very differently from a traditional loan. Understanding these distinctions helps business owners decide which financing structure best fits their ongoing needs. Some of the differences between a line of credit and a traditional loan include:
A line of credit is not a lump-sum, closed-end loan. Instead, it's a flexible credit facility you tap into over time.
Interest accrues only on drawn amounts, not the full credit limit.
Because it's revolving, you can draw, repay, then draw again, until your limit (and term) ends.
In short, a business line of credit is a flexible financial product that gives small business owners a credit buffer to manage business expenses and cash flow fluctuations, provided they meet eligibility criteria and use the credit responsibly.
What Is a Business Credit Card?
A business credit card is a credit card issued in the name of a company (rather than an individual) for covering business purchases. Just like a personal credit card, you charge purchases up to a limit and receive a monthly statement.
If you pay the full balance of your business credit card by the due date, you avoid interest. However, if you carry a balance, interest accrues at the card's APR.
Key Benefits of a Business Credit Card
Business credit cards aren't just convenient for everyday purchases. They also come with valuable features that can improve cash management and deliver extra value to the business. Some of the advantages that attract small business owners to business credit cards include:
Free or discounted employee cards. This helps you track your team's spending on business expenses.
Purchase protection and extended warranties. Added security for expensive equipment or tech purchased via card.
Grace period for payments. Typically, no interest if you pay off the balance in full by the due date.
Rewards program. Many business cards offer points, miles, or travel rewards.
Cash back. A flat or tiered cash-back rate on eligible purchases.
Perks for office supplies and business travel. Bonus rewards or discounts in categories like office supply stores, airline tickets, hotels, or rental cars.
Downsides and Risks
Business credit cards can be powerful tools. However, they also come with drawbacks that owners should weigh carefully before relying on them as a primary financing option.
High APRs. Because balances often carry over, business cards can carry steep interest rates.
Annual fees. Some high-reward cards charge a yearly fee.
Potential for escalating debt. Easy access to credit can lead to overuse.
Strict issuer terms. Some card issuers may require personal credit guarantees or tie the offer to the business owner's personal creditworthiness.
Average Business Credit Card APR
Business credit card interest rates tend to be variable and depend significantly on the credit score, revenue, and the issuer. While recent aggregate data is limited, consumer credit card APRs today hover around the 23.99% range across most accounts. Because of high rates, carrying a balance on a business credit card can become expensive if not managed carefully.
Role in Building Business Credit and Organizational Benefits
Using a business credit card responsibly — that is, making on-time payments and keeping relatively low balances — helps build your business credit history and creditworthiness.
As your business credit profile improves, you may qualify for:
Better financing terms like lower interest rates or more favorable credit lines
Higher credit limits
More favorable access to loans or lines of credit in the future
In addition, separating business spending onto a business credit card helps with accounting, tax tracking, and expense management. It also signals professionalism to vendors.
In summary, a business credit card is a flexible tool for managing day‑to‑day business expenses and capturing rewards. However, its higher APRs and risks of debt require disciplined use and understanding of fees and terms.
Side-by-Side Comparison: Line of Credit vs. Credit Card
Here's a side‑by‑side comparison that can help business owners weigh business LOC vs. credit card decisions. Choosing between them often comes down to cost, convenience, and your cash flow pattern.
| Business Line of Credit vs. Business Credit Card | ||
|---|---|---|
| Feature | Business Line of Credit (LOC) | Business Credit Card |
| Credit Limit/Spending Capacity | Higher credit limits common, lenders may offer sizable lines depending on business performance and collateral | More modest limits tied to issuer assessment and risk appetite |
| Interest rates/Cost of Borrowing | Varies widely from 7% to 60% depending on secured vs. unsecured, credit score, and amount of time business has been in operation | Averages about 17 %, but ranges from about 14% to 27 % |
| Repayment/Structure | Flexible draw and repayment to borrow as needed, repay over time, and reuse available credit (revolving) | Fixed billing cycle with purchases accumulating on monthly statements, pay in full or carry a balance (with interest) |
| Fees | May include origination fees, draw fees, maintenance or inactivity fees, and collateral costs | May include annual fees, late payment fees, balance transfer fees, and foreign transaction fees |
| Perks/Additional Benefits | Financing tool with flexibility and lower borrowing cost | May have rewards programs like cash back, travel perks, and bonus categories (office supplies, business travel, etc.) |
| Risks/Downside | Overdrawing or sustained use can strain cash flow, some fees may eat into benefits | High APR if balance is carried, potential for escalating credit card debt, penalty rates, and compound interest |
When To Use a Credit Card for Your Business
Business credit cards offer convenience and rewards that make them especially useful for managing everyday business expenses. They're ideal when you need flexibility for smaller, frequent purchases — particularly when used strategically to take advantage of their perks.
Typical scenarios where a business credit card may be the better financing tool are:
Day-to-day purchases. Items such as office supplies, software subscriptions, meals, or quick vendor payments are easy to manage with a card's spending limit.
Recurring payments. Monthly expenses such as utilities, SaaS tools, and advertising spend can be auto-billed to your card for smoother cash flow tracking.
Travel-related costs. Cards that offer rewards programs often include cash back, airline miles, or travel perks like insurance and airport lounge access, which are useful for frequent business trips.
Cash flow smoothing. When paid in full each month, credit cards help stretch the timing between income and expenses without incurring interest.
For companies that pay off their balance monthly, the rewards program can actually reduce net costs — earning back a percentage of spend in the form of cash or points. If you carry a balance, though, the high APR can quickly offset those benefits and lead to accumulating credit card debt.
Business owners should also be cautious when considering cash advances, which often come with fees and higher rates than regular purchases. Used responsibly, however, a business credit card can be a convenient and rewarding tool.
When a Business Line of Credit Makes More Sense
A business line of credit can be the smarter financing choice in situations where you need flexibility, lower borrowing costs, and a safety net for your operations. It works best when your business faces variable cash flow, larger one-time expenses, or ongoing funding needs that a credit card can't handle.
Ideal use cases for a business LOC:
Unexpected expenses or emergencies. Whether you need to replace a broken machine, undertake urgent repairs, or pay for unexpected vendor costs, a LOC gives you fast access to working capital without disrupting operations.
Seasonal cash flow gaps. If your revenue fluctuates by time of year, you can draw from the LOC during slow periods to cover rent, staffing, or utilities, then repay when sales increase.
Payroll or regular overheads. Use the LOC as a buffer to meet payroll or fixed costs when receivables haven't cleared yet.
Larger purchases or bulk inventory. For costs too big for your credit card limit (e.g., capital purchases, large inventory orders), a LOC allows higher draws over time.
Bridging accounts receivable. When customers pay late, you can draw from the line to cover shortfalls without penalty or disruption.
Because interest rates on LOCs are typically lower than credit card APRs, you reduce your borrowing cost when you carry a balance. Many LOCs also allow flexible repayment; pay down principal when you have cash, and only pay interest on what you've drawn, not on the full credit line.
You also benefit from higher credit limits compared to credit cards and the ability to draw incrementally as needs arise. Over time, responsible usage contributes to your creditworthiness and demonstrates your business's capacity to manage debt.
Secured vs. Unsecured and Collateral Requirements
LOCs come in two main structures: unsecured and secured. Unsecured LOCs require no collateral, but lenders assess your creditworthiness, revenue history, and business stability more strictly. Secured LOCs require collateral, such as equipment, real estate, or inventory, to mitigate lender risk, which often results in lower interest rates and higher credit limits.
Clarify Capital offers both secured and unsecured lines of credit. Their small business line of credit starts with interest rates beginning at 6 %, and businesses may be able to access revolving credit up to $5 million. Clarify's platform emphasizes that you pay interest only on the amount drawn, not the full credit line, and they don't impose prepayment penalties.
To qualify for business credit, Clarify typically requires $10,000 in monthly revenue, at least six months in business, a business bank account, and a minimum credit score between 500 and 550.
Finding the Right Option for Your Business
Choosing between a business line of credit and a business credit card comes down to how (and how often) your business spends money.
If you're making frequent, smaller purchases and want to benefit from a rewards program, credit cards can offer great perks and convenience. But for larger, more flexible financing options like covering payroll, inventory, or unexpected expenses, a LOC typically delivers better value.
Both tools can support your cash flow, but they serve different purposes. Small business owners should evaluate their needs carefully, considering:
Interest rates
How often you carry a balance
Fees (e.g., annual fees vs. origination costs)
Repayment structure
Monthly payment flexibility
The right choice depends on your business model and how you manage short-term expenses versus long-term needs. Whichever option you choose, making informed financial decisions will help your business grow more sustainably.
Need funding that aligns with your business goals? Apply today with Clarify Capital to explore custom solutions designed for your unique needs.
FAQs About Business Credit Cards and Lines of Credit
Many small business owners have questions when deciding between a business credit card and a business line of credit. Following are answers to some of the most frequently asked questions to help you make the best financial decision you can for your business.
Can a New LLC Get a Business Line of Credit?
Yes, with caveats. A new LLC can pursue a business line of credit, but many lenders (including Clarify Capital) set minimum eligibility thresholds that early-stage businesses may not meet immediately.
Here is a summary of Clarify Capital's requirements and startup policy:
Clarify typically requires a business to have been operating for at least six months before being considered for a line of credit.
The business generally must show at least $10,000 monthly revenue — or average bank deposits of that size — to qualify.
Clarify also checks creditworthiness (including credit score), evidence of business bank accounts, and cash flow statements.
Because of these criteria, Clarify doesn't fund startups with little or no operating history. Until your business meets the eligibility thresholds above, your application may be declined or redirected.
For more information, review Clarify Capital's line of credit eligibility.
How Does a Business Credit Card Work?
A business credit card is a revolving credit tool designed to help businesses manage everyday spending. It's typically issued in the business's name, although the business owner may need to personally guarantee the account. Authorized users (like employees) may receive cards in their own names.
Just like a personal credit card, a business card comes with a spending limit, a monthly billing cycle, and interest charges if you don't pay the balance in full. You receive a monthly statement outlining charges, payments, and any interest owed. If paid in full each cycle, no interest is applied. Otherwise, interest accrues on the remaining balance.
Is Keeping Too Many Business Credit Cards Bad for Your Credit Score?
Yes, but with some important caveats. Holding multiple business credit cards can both help and hurt your credit score or creditworthiness, depending on how well you manage them.
Emma Parker
Senior Funding Manager
Emma holds a B.S. in finance from NYU and has been working in the business financing industry for over a decade. She is passionate about helping small business owners grow by finding the right funding option that makes sense for them. More about the Clarify team →
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