Although not a “loan” in the traditional sense, a business credit card can help you obtain financing without having to go through the burdensome process of getting a loan approval.
Business credit cards are a popular option among entrepreneurs with limited business history who don’t qualify for low-cost financing such as bank lines of credit. 65% of small businesses use them regularly. Business credit cards, like personal credit cards, provide a revolving line of credit that you can use for business expenses. A credit card for your business should not be tied to your personal credit, because maxing out your personal credit cards for business expenses can ruin your personal credit score. But if you pay your bills on time, business credit cards can effectively help you establish a business credit profile. Most major credit card companies have business credit card options.
The required credit score will vary depending on the company that offers the credit card, so you may be able to find a business credit card that fits your current credit situation. If you’re not in a position to qualify for a business credit card, you might consider getting a secured credit card, which requires a deposit or payment guarantee up front. In most cases, this deposit must be made in cash, although some lenders accept houses or cars as collateral. A secured credit card or secured business credit card can be a valuable tool in establishing or repairing your credit.
- Less stringent approval standards
- Fast processing time
- Rewards such as cash back or an introductory 0% interest rate
- Interest paid can be deducted from taxes (unlike personal cards)
- Can help raise business credit score
- Can be used for any business need
- Does not require collateral
Things to consider:
- Higher interest rates than bank lines of credit (13% – 25%)
- Variable interest rates that can go up
- May have an annual fee
- Limited amount of funds (usually $20,000 maximum)
Difference between loan and credit
- Every loan you get, whether from your bank or from a lender, is a credit. The difference is that with a credit (also called a loan), the payment is due periodically. Loans are probably the type of credit that most people would think of when they hear the word “credit”, but they answer to a specific set of legal requirements. Even so, though there are some differences between a loan and a credit, none of them should be a major concern.
- Commercial loans and consumer credit are two different terms for the same thing. A loan is a credit that you obtain generally for a fixed amount of time. Generally, these loans are for personal use, but there is a wide variety of commercial loans available for businesses and individuals.
- Understanding how three different types of credit works can be very confusing to many. For example, every month a person needs to make a payments to a credit card company, this is called a loan. But when a person wants to purchase a car, they need to apply to get a loan. As they do this they will have to shop around for the best deal and there might be some price differences between different lenders. This is where the difference becomes clear: a loan is used for a purchase, which involves a risk of loss, whereas a credit is used for something that does not have any negative effects
- There are a lot of differences between a loan and a credit. One major difference involves interest rates and fees. A loan can be very expensive, as it is for example due to the interest rates. A credit card will charge a fee, but it isn’t as high or expensive as that of a loan. If you’re thinking about using a credit card to help you achieve your goal, make sure you understand the difference between a loan and credit before you choose one.