Business financing can help you access the funds you need to operate and grow, but not all financing options work the same way.
Understanding the differences between a business line of credit, a business loan and a business credit card can help you choose the best tool for your needs. Each offers unique advantages and trade-offs regarding flexibility, cost and repayment structure.
This guide explains how each option works, when to use them and what to consider before applying.
Business line of credit
A business line of credit gives you flexible access to funds, capped at a set limit, that you can draw from as needed. Similar to a credit card, users borrow, repay and can borrow again. Where they vary from credit cards are usually on their larger credit limits and lower price points. They can also be used to fund purchases or expenses that a credit card typically can’t cover, such as for payroll or leases.
When you think of a line of credit, think short-term or recurring expenses, such as purchasing inventory, paying suppliers or managing seasonal cash flow. Lines of credit are also helpful for unexpected expenses that pop up. Users pay interest only on the amount borrowed, not the total limit, which can make this option cost-effective if managed wisely.
Some lines of credit are secured by collateral (like business assets) while others are unsecured. They are almost always underwritten based on a user’s personal and business credit score.
Business loan
A business loan delivers a lump sum of money all at once, which you repay over a fixed term, typically with monthly payments that include principal and interest pre-calculated out at the time of distribution. These loans typically have fixed rates and tend to be better suited for one-time expenses and investments such as equipment purchases, expansion projects, or other fixed costs.
The structure of a loan generally offers predictability. Users know how much they owe each month and when the loan will be paid off. Unlike a line of credit, once a business loan is repaid users will need to reapply for additional funding if additional financing is needed.
Business credit card
A business credit card is another revolving credit option, generally intended for everyday purchases like office supplies or small vendor payments. Compared to lines of credit, business credit cards typically offer benefits, such as rewards programs.
Credit cards are usually unsecured, meaning they don’t require collateral. They’re a good fit for businesses that want convenient, short-term funding that they can use on recurring expenses.
Business line of credit vs. business loan vs. business credit card
Each financing option serves a distinct purpose:
- Business loans are best for one-time expenses or investments with clear repayment timelines
- Business lines of credit provide flexible funding for working capital or ongoing expenses
- Business credit cards help manage everyday costs and offer additional benefits such as rewards programs
How to choose the right option
The right financing choice depends on your business goals, cash flow and repayment ability.
A loan may be the best fit if you need steady, predictable payments for a defined project. If you prefer flexibility, a larger credit limit and want to borrow only as needed, a line of credit can help smooth cash flow fluctuations. And if you’re focused on managing daily purchases while taking advantage of perks and rewards and credit-building opportunities, a business credit card might be the most practical option.
Before applying, compare interest rates, fees and qualification requirements across lenders. Also, consider whether your business can handle variable rates, such as with a line of credit or credit card, versus fixed rates, such as with a business loan.
