A credit card is a convenient and rewarding way to cover daily business spending. A line of credit is a flexible loan for managing larger expenses and cashflow.
A business credit card gives you a very simple way to cover smaller, ongoing business expenses for you and your employees. You can even earn points.
A line of credit gives you a flexible way to cover larger expenses. You only pay interest on the money you spend, with a set loan term to repay it by.
A credit card is better suited to managing day to day expenses. But you can also use both.
What's a business line of credit?
With most business loans you borrow a lump sum and then pay it all back. But a business line of credit gives you an approved credit limit. You can spend any amount up to the credit limit. And you only pay interest on the amount you spend.
You can withdraw money over time to cover different expenses. And there's a set period in which you have to pay it back.
Example: taking out a line of credit for your business
Your business gets approved for a $50,000 line of credit with an interest rate of 15% and a 2 year loan term.
You don't pay interest at all until the third month into the loan, when you spend $10,000 on equipment. The lender charges you interest on the $10,000 only.
A few months after that you spend a further $15,000 fitting out a new business premises. This gets added to the loan amount. You have 2 years to pay it all back. That's $25,000 in total.
What's a business credit card?
A business credit card functions in the same way as a normal credit card, but it's only offered to eligible business customers (you'll need an ABN and minimum business revenue of around $75,000).
Like with a line of credit, a credit card offers a pre-approved credit limit. And you only get charged interest on the money you spend. How long it takes you to repay your card spending depends on you, just as long as you make the minimum payment each month.
Credit cards offer perks like the ability to earn frequent flyer points on your business spending. You can also issue linked cards to employees and track their spending via integration with your accounting software.
A business charge card is similar to a credit card but with one key difference. You have to repay the full amount you spend on the card each month. You can't carry a balance over time like with a credit card.
But charge cards can offer higher credit limits, which gives you some extra flexibility and spending power.
Line of credit vs business credit cards
Line of credit
Credit card
Credit limit
You can get a line of credit approved for hundreds of thousands of dollars or even into the millions.
Business credit card limits vary based on your business size and needs, but tend to be lower than a line of credit.
Interest rates
Interest rates on business credit lines vary, but tend to be higher than standard business loans.
Credit card interest rates range from 9% to 22%. But with interest-free days you can avoid interest charges if you pay off your business spending before interest charges kick in.
Fees
There is often an application fee or drawdown fee (sometimes charged as a percentage of the loan amount).
Business credit cards have an annual fee of a few hundred dollars.
Repayment
You repay whatever money you spent, with a fixed end date to the overall line of credit.
You can repay all your spending each month and avoid interest charges, or pay it off over time (as long as you make the minimum monthly payment).
Perks and benefits
You don't really get any perks or extra benefits with a line of credit.
You want to issue cards to employees for business spending or travel.
You want to earn frequent flyer or rewards points on your business spending.
You need to cover regular, relatively small and unpredictable business expenses.
A business line of credit is likely more useful if…
You need to cover several very large business expenses, and not all at once.
You don't need to worry about managing employee spending or travel.
You're not interested in earning frequent flyer or reward points.
Frequently asked questions
There's nothing stopping you from having a business credit card for daily business expenses and a line of credit to cover larger, less frequent business costs.
Taking out any form of credit affects your business credit score. The more loans or credit cards you have, the more it impacts your credit score.
Maintaining and regularly paying off your business credit card can help you build up your credit score. Missing repayments or taking out multiple cards and loans in a short time will harm your credit score.
There's no right or wrong answer. It depends on what expenses you're trying to cover. A line of credit is better suited to covering a series of larger but predicted expenses. For example, a quarterly restock of inventory or equipment purchases.
A business credit card is better suited for managing regular but unpredictable business expenses at the point of sale like booking business travel for employees or paying for food when meeting with clients.
Interest charges and credit card or loan fees are tax deductible business expenses, according to the ATO.
This is true for business credit cards and line of credit loans.
Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University.
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