Corporate credit cards
A business credit card works more or less like a personal credit card. It’s a revolving loan with a set limit. It’s usually easier to qualify for a business credit card than a business loan, assuming your company’s credit is pretty good. Unlike business lines of credit, you usually don’t have to reapply for a credit card every year. Credit cards make it easy to keep your business expenses separate from your personal expenses, if you’re disciplined about using your business card only for business spending. The incentives offered by credit card companies – free flights, cash-back discounts – can be useful for small businesses. And a credit card, used wisely, can help manage cash flow. However, the interest rate on a credit cards is usually higher than available rates for lines of credit or small business loans. The loan limit is lower. Business credit cards can be lost or abused by unscrupulous employees. And, most of the time, your bank will put you personally on the hook for repayment if you’re company can’t pay the bill – there’s no limited liability for a corporate credit card.
Line of credit
This type of loan is designed to finance short-term working capital needs – inventory purchases or operating expenses. You wouldn’t use this kind of loan for big purchases. But businesses with choppy sales patterns – big gains during the holidays and weak sales in the summer, for example – tend to want lines of credit to smooth out their operating finances. You generally need to be a profitable business that can demonstrate positive cash flow to receive a line of credit loan. The application process takes longer and requires more documentation than that for a corporate credit card, but the interest rate is lower and the amount available to borrow is usually much higher. The interest rate is fixed, unlike a credit card.
Small business loan
These loans are often larger than line of credit borrowings, and require at least as much documentation.