Business line of credit vs. credit card: Which is right for your SMB?
Your bookkeeper just flagged a $15,000 invoice due next week. Your marketing director needs approval for conference travel. And three employees are waiting on company cards for daily expenses.
Ring a bell?
Small business owners face constant decisions about how to fund operations, manage cash flow, and give teams the tools they need. Two popular options dominate the conversation: business credit cards and small business lines of credit.
But understanding which one fits your specific needs, or whether you need alternative financing at all, can make the difference between smooth operations and cash flow chaos. In this blog, we’ll break down both options and explore a smarter approach that doesn't involve borrowing a dime.
Key takeaways
- Business lines of credit offer flexible, reusable funding – ideal for large expenses and cash flow gaps.
- Business credit cards provide fast access for everyday purchases and employee spend.
- Interest rates, repayment terms, and approval requirements vary significantly between the two.
- Many small businesses use both tools strategically based on expense type and cash position.
- The Expensify VisaⓇ Commercial Card isn't traditional credit financing but a corporate card that gives you realtime control, cashback, and zero debt risk.
What is a business line of credit?
Think of a business line of credit as a financial safety net you can tap whenever needed. Unlike a traditional loan that gives you a lump sum upfront, a line of credit works more like a reservoir: you draw what you need, pay it back, and draw again.
The key advantage? You only pay interest on the amount you actually use, not the full credit limit.
This draw-and-repay model makes lines of credit particularly valuable for:
Managing cash flow fluctuations
Covering large one-time purchases
Bridging seasonal revenue dips
Stocking inventory before busy periods
Handling unexpected business expenses
For instance, a retail business might draw $30,000 in September to stock inventory for the holiday season, then repay it in January of the following year when sales revenue comes in.
Business lines of credit come in two main forms: secured and unsecured. Secured lines require collateral (like equipment or real estate), which typically means lower interest rates and higher credit limits. Unsecured lines don't require collateral but often come with stricter qualification requirements and higher rates.
Nearly 50% of small businesses use lines of credit for business to manage cash flow, according to the Kansas City Fed's Small Business Lending Survey. The flexibility to access funds as needed, rather than taking out a fixed loan, gives businesses the agility to respond to opportunities or challenges without over-borrowing.
For businesses implementing comprehensive expense management strategies, a line of credit can serve as an important backup financing tool when unexpected costs arise.
Types of credit line fees
Understanding the fee structure is critical before opening an operating line of credit. Here's what you might encounter:
Origination fee: A one-time charge (typically 1-3% of the credit limit) when you first open the line of credit. Some lenders waive this fee to remain competitive.
Annual fee: An ongoing maintenance fee charged each year to keep the line of credit open, even if you don't use it. Ranges from $50 to several hundred dollars, depending on the lender and credit limit.
Draw fee: Some lenders charge a small fee each time you withdraw funds from your line of credit. This can add up if you make frequent draws.
Late fee: Penalty charged when you miss a payment deadline. These can be substantial and may also trigger penalty interest rate increases.
Interest: The primary cost of borrowing. Business lines of credit typically charge interest only on the outstanding balance you've drawn, calculated daily and charged monthly. Rates vary widely based on creditworthiness, collateral, and market conditions.
What is a business credit card?
A business credit card is exactly what it sounds like: a credit card designed specifically for business expenses rather than personal spending. Unlike consumer credit cards, business credit cards often come with higher credit limits, expense tracking tools, and features tailored to company spending patterns.
While some refer to this as a credit card line of credit, it functions differently than a traditional line of credit.
The beauty of business credit cards for new businesses is their simplicity and speed. Once approved, you can immediately start using the card for everyday business expenses like:
Software subscriptions and cloud services
Office supplies and equipment
Client meals and entertainment
Travel bookings (flights, hotels, car rentals)
Employee purchases and reimbursements
Marketing and advertising spend
Most business credit cards also offer rewards programs like cash back, travel points, or statement credits that turn necessary spending into tangible benefits.
Building business credit: When used responsibly and paid on time, business credit cards help establish and build business credit. This demonstrates creditworthiness to lenders and can improve your business credit score over time, making it easier to secure larger financing in the future.
According to the Federal Reserve's Report on Employer Firms, nearly 40% of small businesses use credit cards as their primary funding method for daily operational expenses.
The key advantage? Instant access and the ability to issue multiple cards to employees with individual spending limits.
Business line of credit vs credit card: Key differences explained
The right funding tool depends on your specific business needs. This business line of credit vs credit card comparison examines the difference between line of credit and credit card options to help you make smarter financial choices. Here's how these two options compare across critical decision factors:
| Factor | Business line of credit | Business credit card |
|---|---|---|
| Access speed | Can take several days to weeks for approval and fund access | Immediate use after approval (often same-day for digital cards) |
| Interest rates & fees | Typically 7–25% APR, often lower than credit cards; may include origination and annual fees | Average 18.74% APR; higher rates but often offset by rewards programs and perks |
| Repayment terms | Flexible draw-and-repay model; pay interest only on drawn amounts; typically revolving terms | Revolving balance with required monthly minimum payments; full balance due to avoid interest |
| Credit impact | May require personal guarantees; affects both business and personal credit | Often requires personal credit check initially; impacts credit utilization ratios |
| Best for | Large expenses, working capital needs, inventory purchases, cash flow gaps | Daily business spend, team purchases, travel, subscriptions, rewards optimization |
The average APR on business credit cards sits at 18.74%, while business lines of credit range from 7-25% depending on creditworthiness and collateral, according to Bankrate's business financing analysis.
Understanding these differences helps you deploy each tool strategically. The business line of credit vs business credit card question comes down to how you'll use the funds. For instance:
Use a credit card for recurring monthly expenses to earn rewards
Reserve your line of credit for larger, one-time investments or seasonal inventory needs
When to use a business credit card
A business credit card is typically the better choice when:
You’re covering recurring monthly expenses like software, subscriptions, or trave
You can pay the balance in full each month to avoid interest
You want to earn cash back or travel rewards
Your team needs individual cards with spending limits
You value built-in expense tracking and reporting tools
Credit cards work best for predictable, short-term operational spend.
When to use a business line of credit
A business line of credit may be the better fit when:
You need access to larger sums of working capital
Your revenue fluctuates seasonally
You’re funding inventory or equipment purchases
You want flexible repayment over several months
You’re bridging cash flow gaps between client payments
Lines of credit are better suited for strategic financing, not everyday team purchases.
The pros and cons of small business lines of credit vs business credit cards
Every financing tool comes with trade-offs. Whether you're weighing a small business line of credit or credit card, here's what business owners should consider:
| Business line of credit | Business credit card | |
|---|---|---|
| Pros |
• Flexible draw/replenish structure • Often lower interest rates • Only pay interest on what you use • Larger credit limits available • Doesn't require monthly usage |
• Fast approval and immediate use • Builds business credit • Offers rewards/cashback • Easy to issue multiple cards to team • No collateral required for most cards • Simple expense tracking and integration |
| Cons |
• Longer approval process (weeks) • May require collateral or personal guarantees • Harder to qualify for newer businesses • Annual fees even when not in use • Complex application with extensive documentation |
• Higher interest rates if carrying a balance • Easier to overspend with team access • Often tied to personal credit • Lower credit limits (typically $5K–$50K) • Interest accumulates quickly on unpaid balances |
What's best for your business: A business line of credit or credit card?
The honest answer? It depends on your specific situation, and many small businesses actually use both strategically.
Evaluate your cash flow patterns
Does your business have steady, predictable revenue or significant seasonal fluctuations?
Companies with seasonal revenue spikes (like retail stores or landscaping businesses) often benefit from a company credit line to bridge the gap between slow and busy periods.
Meanwhile, businesses with consistent monthly revenue might find credit cards sufficient for managing daily expenses without needing to explore a business loan or more complex financing.
Consider your typical purchase patterns
Are you making lots of small, recurring transactions or occasional large purchases?
Daily operational expenses (software, supplies, meals) typically make sense on a business credit card where you can earn rewards and simplify expense tracking
Large, one-time investments (equipment, inventory orders) might warrant drawing from a line of credit at a lower interest rate
Think about your team's spending needs
If you have employees who regularly make purchases on behalf of the company, business credit cards with individual spending limits offer better control and visibility. Lines of credit typically work better for planned, centralized business investments made by ownership.
The strategic approach: Many successful small businesses maintain both – using credit cards for everyday team spending and keeping a line of credit as a financial safety net for larger needs or unexpected opportunities. This dual approach combines the convenience and rewards of credit cards with the flexibility and lower rates of lines of credit.
Don’t want to borrow at all?
If your business has healthy cash reserves and doesn’t need financing, you may not need either tool for day-to-day spending. That’s where corporate cards that use company funds, like the Expensify Card, offer an alternative.
Meet the Expensify VisaⓇ Commercial Card: Smarter spend control, not financing
Here's where things get interesting. What if you could give your team the convenience of credit cards without taking on debt or paying interest?
That's exactly what the Expensify Card offers, and it fundamentally changes the conversation about business funding.
Let's be crystal clear: The Expensify Card is NOT a credit card, and it's definitely not a loan.
It's a corporate card that settles automatically from your business bank account daily or monthly. You're spending your own money, not borrowing from a lender. This means:
Zero interest charges
Zero debt accumulation
Not tied to a revolving credit line
This approach is ideal for:
Founders who want to avoid debt: If you've built your business without loans and want to keep it that way, the Expensify Card lets you maintain that discipline while still giving teams convenient payment tools.
Businesses with solid cash reserves: Companies with healthy operating capital don't need to borrow for daily expenses; they just need better tools to manage and track spending.
Teams needing card access without risk: Issue unlimited virtual cards to contractors, give team members spending limits, and maintain full control without worrying about someone maxing out a credit line.
What makes the Expensify Card stand out
Earn up to 2% cash back on eligible US purchases: Yes, you read that right! Earn rewards on your own money. Every dollar spent on the Expensify Card earns up to 2% cash back, effectively reducing your overall business expenses.
No personal credit check: Because you're spending your own funds, there's no need to pledge personal assets or go through credit underwriting. Set up takes minutes, not weeks.
Realtime policy enforcement and approvals: Set spending rules, merchant category blocks, and approval workflows that apply instantly. Your expense policies aren't suggestions but automatically enforced at the point of transaction.
Spend auto-flows into expense reports: Every swipe immediately creates an expense entry with merchant details, category coding, and receipt matching. No more chasing team members for documentation or reconciling statements manually.
When you're evaluating corporate card programs, the Expensify Card offers a compelling alternative to traditional financing-based approaches. It's perfect for businesses that want comprehensive expense management without the overhead of managing debt.
Choose smarter, spend better
There's no universally "best" option between business lines of credit and credit cards because the right choice depends on your cash flow patterns, credit access, and operational needs.
The strategic approach: Many smart business owners use both – credit cards for day-to-day spending with rewards benefits, and lines of credit for business financing as a safety net for larger needs or unexpected opportunities. The business line of credit vs. credit card debate often resolves itself when you realize both tools serve different purposes in your financial toolkit.
But if you want realtime control without relying on borrowed funds, the Expensify Card is worth exploring. It's not financing. It's a spend control tool designed for modern SMBs who want the convenience of corporate cards with the discipline of spending only what they actually have.
No interest, no debt, no credit applications. Simply fast, smart spending with up to 2% cash back. And who can argue with that?
FAQs about business lines of credit vs credit cards
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Not exactly. A credit card is revolving credit designed for transactional purchases with monthly minimum payments. A line of credit lets you draw funds as needed (via transfer or check) with more flexible repayment terms and is better suited for larger, planned withdrawals.
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Use credit cards for daily expenses under $5,000 where you can pay the balance monthly and earn rewards. Use a line of credit for larger purchases, inventory, or cash flow gaps needing flexible repayment over several months. Many businesses use both strategically.
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Yes, and lenders often prefer LLCs because of their liability protection and clear business-personal separation. Newer LLCs (under two years old) may need to provide personal guarantees or collateral, while established LLCs with solid revenue typically qualify more easily.
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Lines of credit are ideal for seasonal inventory purchases, covering payroll during slow months, funding marketing campaigns, handling equipment repairs, and bridging gaps between expenses and client payments. You only draw what you need when you need it.
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Once approved for a credit limit, you draw funds as needed and only pay interest on what you've borrowed. As you repay, that credit becomes available again (revolving). Most have draw periods for taking funds and repayment periods for paying back the balance.
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Yes, you pay annual fees even when not using it ($100-$500), newer businesses struggle to qualify, many require personal guarantees that put your assets at risk, and easy fund access can lead to unnecessary borrowing.
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Neither. It's a commercial corporate card where you spend your own money from your business bank account, not borrowed funds.
No interest, no credit checks, no debt, no personal guarantees. Just instant issuance, realtime controls, and up to 2% cash back (eligible USD purchases) on your own spending.
