232.jpgLines of credit (LOCs) and credit cards are two financing options that are popular with many business owners, especially for short-term or unexpected projects and expenses. Technically, a credit card is a type of LOC, but there can be important differences between the two regarding terms of use, interest rates, repayment schedules, and other factors. Understanding those differences can help you make the right choice when deciding which form of credit to use for a particular purpose.


A credit card is a revolving line of credit where there are no fixed payments, explains Joel Ohman, a financial planner and founder of the website CreditCardChaser.com. Many LOCs are installment lines of credit and may have fixed payments. “Practically speaking, credit cards and lines of credit serve different yet related needs. When a business needs access to larger amounts of credit, a line of credit is often the more appropriate choice,” he says. “But a credit card is unmatched when it comes to convenience and ease of use.”


A business credit card account utilizes a plastic card at the point of sale, the same as with a consumer credit card, while a line of credit is typically accessed by writing a check, says Ben Woolsey, director of marketing and consumer research at CreditCards.com. However, some LOCs also come with a debit card that can be used just like a credit card in many situations.


Convenience makes business credit cards the best choice for day-to-day buying, and they offer other advantages as well, says Greg Hammermaster, president of Sage Payment Solutions. Business owners can set credit limits on each card, and electronic transaction data related to cards usage can be integrated with business accounting and expense management programs to provide significant business process efficiencies. Many business credit cards also offer corporate benefits or rewards, such as points/miles that can be used for travel expenses or cash rebates.


If a business knows it’s going to need to borrow for longer periods of time, has larger borrowing needs, and has a verifiable financial track record of at least two years, a line of credit is usually the better option, suggests Erik Larson, president and founder of NextAdvisor.com. Often, the most important factor to consider when choosing whether to use a credit card or an LOC for a particular purchase is how soon you will be able to pay it off. “If you have the cash to pay the balance due in the current billing cycle, it can be easier and cheaper to use a credit card,” he says. “If it’s going to take a lot longer to pay off, and this is a recurring situation for your business, it probably makes sense to use the LOC. A line of credit generally has a lower interest rate than a credit card, and the interest savings usually more than make up for any fees associated with it.”


In the end, the right choice is the one that best fits your specific needs and situation, Ohman stresses. “Different businesses in different industries often have quite different financial needs. Be careful that you don’t begin using a particular financial product just because a business owner in a totally different industry recommended it,” he says. “Ask around, and see what kinds of things are working best for others who own businesses similar to yours.”

Credit Lives vs. Credit Cards

Line of Credit*

  • Generally installment line
  • May have fixed payments
  • Usually lower interest rate
  • No interest-free period
  • Best for longer-term/larger borrowing needs


*May or may not have fees

Credit Card*

  • Revolving line of credit
  • No fixed payments
  • Usually higher interest rate
  • Interest-free grace period
  • Best for convenience/shorter-term/lower-dollar purchases


*May or may not have fees




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