Practically all businesses need money at one point or another. Many financing options exist, but two popular choices are to open a line of credit or get a credit card. Deciding upon the best option may be difficult since credit cards and lines of credit work in a similar way — both allow you to access money when you need it and then you make payments on a predetermined schedule. If you don’t know whether to use a line of credit or a credit card for finances, the scenarios below can help you decide.
What Do You Do If You Have a Difficult Time Getting Approved for a Loan?
Credit cards typically have higher interest rates than lines of credit, but getting approved for a credit card is much easier. All you need is proof of income to get a credit card. A line of credit requires proof of income and collateral. If you’ve previously been declined for a loan, a credit card can be your best option, giving you a better chance of getting approval to borrow the money you need.
What Do You Do If You Need to Get Money Fast?
Getting a credit card is easier and faster than getting a line of credit. Many banks will instantly approve you for a credit card and give you a number to use until your official card arrives in the mail. You could potentially use a credit card the same day you apply for one. If you need money quickly, a credit card is the best option. However, you’ll need to keep in mind that you’ll have to deal with higher interest rates than if you requested a line of credit.
What Do You Do If You Need to Borrow a Large Sum of Money?
Credit cards allow you to receive money quickly, and you can get approved to receive one without much hassle. However, you can usually get approved to borrow more money with a line of credit. If you need more than a few thousand dollars, a line of credit is your best option.
You can turn to almost any bank for a small business line of credit, but working with a company that specializes in this type of credit is better. For example, Kabbage offers unsecured small business lines of credit at competitive interest rates. Additionally, this online lender could qualify you for a line of credit up to $150,000.
What Do You Do If You Only Need a Loan for a Short Time Frame?
In general, getting a line of credit is better than a credit card because lines of credit have lower interest rates. This reality doesn’t matter much if you plan to have the loan only for a short time frame. If you pay off your credit card the same month that you use it, sometimes you can avoid interest entirely.
Never apply for a line of credit or a credit card without a plan for how you will pay back the money. Always consider the terms of the loan and choose the best option for your business. If you still don’t know what to do, talk to a business financial expert.