Should Small Business Owners Use Cash Back Credit Cards or Open a Line of Credit

Business lines of credit allows you to pay interest only on the amount you borrow within the credit limit. For example, if the credit limit of the business line of credit is $15,000 and you borrow $3,000, you only pay interest on the $3,000 that you borrowed. You can fully withdraw the funds within the credit limit you are assigned without any additional fee. It works just like a business credit card but a business credit card will charge more expensive APR interest rate.

Business line of credit is a type of unsecured debt so you are not required to use your business assets as collateral. Credit cards normally do not require collateral unless you apply for a secured card. Secured card where the credit line is determined by the security deposit is for people with bad credit.
Business line of credit helps you to manage your expenses more efficiently because you are only borrowing the amount of money you need to cover your small business costs. You must be financially responsible if you want to use a credit card to pay for business expenses. This because you can easily max out the card by charging it on various expenses if you don’t know how to budget your business cost.

The business line of credit does not offers promotions such as rewards program and cash back on your purchases like a cash back credit card. The cash back business credit card is suitable for you if you want to enjoy some discounts while spending money on your business expenses.

The credit limit of the credit line in the business line of credit is higher than the credit limit in the business credit card. It is harder to get approved for a business line of credit compared to credit card. The reason why credit card is easier to get approved is because they usually don’t verify your income properly.

You can take your time in paying the amount your borrow in the line of credit but you must keep in mind that interest will add up onto the owed amount as you take a longer time to make the repayment. On the other hand, the credit card has a grace period which is normally 30 days. If you don’t pay at least the minimum amount by the due date, your credit card company will automatically report you to the credit bureau and your credit score will drop.

Both line of credit and credit cards have fees so make sure you go through every single detail in the terms and conditions.
Fees that you may be charged include annual fee, late payment, penalty APR and access fees. You can use business line of credit when you have to make payment for merchandises or services to merchants that are not accepting credit card payment.

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