The first universal credit card was introduced in 1950. Since then, Americans prefer the habit of buying items on credit and paying off afterward. Later the credit card companies added more benefits with the cards to attract new potential consumers.
In today's world, credit cards are not only used for personal use, but people also use them for business purposes as well. It’s quite common that people use credit cards to buy business essentials such as furniture, inventory, and many other things while starting their new business.
Today we’ll discuss the pros and cons of opting a business credit card or taking out a business loan. Both the options are good, but it’s crucial for you to know which option is the best according to your situation.
A business credit card
First, let’s review the pros and cons of a business credit card:
Pros of a business credit card:
1. It is easier to take out a business credit card than a business loan.
2. It doesn’t need any collateral.
3. A business credit card is considered as a good line of credit and helpful for building high credit score if you can use it wisely.
4. Several reward programs along with a business card can be very beneficial.
A business credit card can help you to manage your business oriented costs temporarily if you experience a major downfall. Keeping such a card can be beneficial for your company as it’ll help you to build good credit, too. It’s also useful for foreign business transactions, as well.
Cons of a business credit card:
1. Interest rate on a business credit card can fluctuate at any point of time.
2. There are chances of credit card fraud or any other security issue at any point of time.
3. You may have to bear few fixed charges associated with keeping a business credit card.
As stated above, the interest rates on your business credit cards may increase over the time. So, if you don’t use these cards too often, it may become costly for you to hold such cards. Like other credit cards, the terms & conditions also may change on business cards.
In addition, there are some security issues with a business credit card. A business has numerous people associated with it. These may include (without making any exception) the manager, a salesperson, the customers, vendors, employees or even a maintenance person. Amongst these people, anybody can misuse the card without anyone's concern. However, in the end, the company will be liable for the monetary loss incurred due to that credit card fraud or identity theft. So, it’s a bit risky to keep a business credit card within every person's reach.
A business loan
Now let’s review the pros and cons of a business loan:
Pros of a business loan:
1. You can arrange a large sum of money for your business development and to meet other related costs.
2. Interest rates on a business loan may be tax deductible.
3. Interest rates on business loans are quite low and fixed.
Cons of a business loan:
1. A business loan requires collateral.
2. A business loan may take a longer time to get the approval than other loans.
3. Poor or bad credit may create issues to get the approval.
As stated above, a business loan comes with a low and fixed interest rate.
If you have a good credit score, you'll easily get approval for a business loan.
Business loan interest rates also can be tax deductible.
The downside of a business loan is that it is usually provided for businesses that are already thriving. So, companies that are already making a profit and wish to grow further are more likely to get the approval easily. Furthermore, most of the banks may take months to review your application before making the final decision.
Deciding the perfect credit line for your business is a quite tough job. You need to consider the lifespan of your business, the purpose of getting the funds, and the type of financing you would prefer. However, if you’re already an owner of an established business and need capital, a business loan can be easily available to you. On the other hand, getting a business credit card is easy if you have good credit. So, your first step should be analyzing the pros and cons of these options and then you should decide.