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Business Line of Credit vs Credit Cards: Which Is Right for Your Small Business?

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When a small business is in need of financial assistance to cover its costs or grow in its market, choosing between a business line of credit (LOC) and a business credit card is an important decision.

A line of credit, also known as a revolving credit facility, is a borrowing arrangement in which a bank, credit union or other lender, agrees to extend a maximum amount of credit to a borrower, who can then draw on that credit as needed. On the other hand, a business credit card is specifically designed for business owners to use for business expenses. Like a personal credit card, a business credit card allows you to borrow money up to a certain limit, which you can then pay back over time.

Due to the flexibility they afford, both of these shorter-term financing methods can be helpful for businesses. However, their specific pros and cons make them more suited to certain circumstances. In this blog, we take a closer look at the potential benefits of credit lines and credit cards can provide for your business.

Advantages of a Line of Credit

A business credit line offers several noteworthy benefits.


With flexibility at its core, a credit line allows you to use as much or as little of the available credit as you need and only pay interest on the amount that is actually used, not the total amount. Also, unlike a personal loan, which is typically used for a single major purchase, a revolving credit facility can be reused as long as the drawdown is repaid.

Quick Approval

Normally, when comparing a line of credit to a credit card, one thing that counts against the line of credit is its approval time. With a traditional financial institution like a bank it usually takes longer to get approved for a LOC than it does to get approved by a credit card issuer. However, with the Merchant Growth line of credit for business, small businesses can get funded in as little as 24 hours, effectively turning this negative into a positive.

With minimum eligibility requirements, Merchant Growth can provide funding on a significantly shorter timeline than a traditional financial institution.

Higher Credit Limit

Innovative lenders, like Merchant Growth, are willing to offer higher credit limits to businesses depending on their size and length of time in business. In fact, while the credit limit of a business credit card generally hovers around $50,000, some lenders offer access to lines of credit worth far more. The greater purchasing power a LOC affords therefore makes it ideal for large business purchases. Many times a business line of credit is used in conjunction with a business credit card, as a way to avoid maxing out credit cards, or providing additional credit once there is not more available on the cards.

Advantages of a Business Credit Card

Like lines of credit, credit cards offer small businesses their own set of benefits.

The Option to Have Multiple Cards

Business credit cards are a great tool for businesses where employees may need to make purchases. Providing multiple users with individual cards within the same company ensures that each employee has access to the resources they need, when they need them.

This means employees no longer have to worry about making the purchase and waiting for reimbursement from the business, so everyone can work quickly and get things done in efficient time frames. Plus all purchases can easily be tracked on the credit card statement.

Rewards and Perks

Business credit cards can be a valuable asset to any business looking to get the most out of its money. Some of the perks credit cards offer include cash rewards for every dollar you spend, travel points, access to exclusive discounts and other rewards. Carefully researching the offerings of different credit cards can ensure your business makes the most out of these rewards programs, allowing you to further lower your operating costs and improve your bottom line.

Minimum Repayment

Credit cards give borrowers the benefit of minimum monthly payments, allowing them to pay off part of their balance right away and carry the remainder forward if needed. This can be a great advantage for businesses that need flexibility in managing their finances. Instead of taxing cash flow with large lump-sum payments each month, minimum repayment enables small business owners to allocate more money towards financing other areas of the business such as inventory or staffing.

Additionally, minimum monthly payments allow businesses to spread repayment into manageable chunks by lowering their debt burden while maintaining access to capital when needed.

Build Credit for your Business

As a business owner, having a good credit score is essential to your success, and effectively using a business credit card is a great way to build up credit for your business. By using your business card correctly and paying the balance off promptly each month, you will be able to increase the standing of your business’s credit score with relative ease.

When Are They Practical to Use?

While many businesses use both a line of credit and a business credit card for their needs, these methods of financing each have circumstances where they are more practical than the other.

For businesses with irregular cash flow, like seasonal businesses, a line of credit is ideal because of the flexibility it affords. Businesses can use as much or as little of the available credit as they need, depending on the situation. A line of credit can also be great for growing businesses or businesses that need to make large purchases due to their higher credit limit.

Credit cards on the other hand, are much more useful for small purchases such as gas or day-to-day pieces of equipment or materials that businesses need. Also, because business credit cards allow for multiple users, they are perfect for small businesses where employees need to make purchases on behalf of the business.

Merchant Growth Provides Tailored Solutions

What comparisons such as these reveal is that there is no one-size-fits-all solution to small business financing. Businesses vary based on their industry, their size, and modes of operation, and therefore, financing options should vary accordingly.

Contact Merchant Growth today, and work with a dedicated financing advisor to find the best solution for your business needs.

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