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Michelle Adams

Businesses, like people, run short of funds. Actually, when businesses run short on money so do people. Someone owns a business. If the business has cash problems, then the owner has to address the problem. As a proprietor, it is possible to borrow funds in the name of the business. A business loan or a business credit card account can serve as a valuable means of funneling money to a business in need. Of course, any type of borrowing has to be repaid. Therefore, the terms, conditions, and interest rates do need to be examined before deciding to draw money or charge bills.

The Clear Question

A question is sure to emerge here. Is a business credit card better than a small business-loan? Would a small-business loan be preferable to the seemingly easier to use best business credit cards?

Variations in a business owner's situation play a role in what would be the best selection of a type of loan. A wise approach here would be to closely look at the difference and the pros and cons of business loans and business credit card. Becoming more informed about these unique borrowing options allows for making a proper decision on which one to select.

Business Credit Cards

Business Loans vs. Business Credit Cards: A ComparisonBusiness credit cards are exactly like a traditional personal credit card. Instead of using a social security number to apply for one, an EIN number is required. Do not worry about jumping through any hoops to acquire one. An EIN number can be gained from the IRS with a simple phone call to the agency's customer service line.

Charging things on the card is no different than charging items on a “normal” credit card. Business owners could charge pretty much anything they wish with the card. Again, it is a credit card issued in a business' name.

The credit on the card is labeled revolving. This means the credit can be accessed over and over again as long as the card is not maxed out. Paying down the balance frees previously used credit. Of course, all the basic logic points of credit card use must be in play when opting to utilize the card. Paying on time, not charging recklessly, and always seeking the lowest interest rates are advisable steps to follow.

These credit cards are not too elusive to acquire for those with good credits. The drawback with this option is a business credit card might come with a very high interest rate.

Bank-Issued Small-Business Loans

Business loans, like personal loans, reflect a finite amount of money issued at a set interest rate with a requirement to pay the funds back within a set number of months. An example of this would be a $3,000 loan issued at 8% interest and a term of 24 months.

Unlike a business credit card, a business loan would not come with a revolving line of credit. Loans of this nature may be procured to handle a one-time expense such as remodeling the front of the business or upgrading computer equipment.

Business Loans vs. Business Credit Cards: A ComparisonBeing approved to a small-business loan from a bank, credit union, or other financial institution may or may not be easy. The amount requested combined with the credit worthiness of the applicant plays a role in approval. A $1,500 loan is surely going to be easier to be approved for than a $40,000 loan. Collateral might be required for the loan as well.

Those who are turned down for a traditional business loan or credit card do have another option. Online lenders who specialize in business support do exist.

Online Small-Business Loans

Online lenders serve a vital need. Those business owners struggling with poor credit and a difficulty procuring financing find online lenders a willing partner. The loans sought from online lenders are usually on the smaller side, but higher amounts are possible. The significantly high interest rates associated with these types of loans almost force borrowers to seek out only smaller amounts. Significant amounts would come with incredible interest payments.

Other things have to be taken into consideration when seeking out these loans. Poor credit may not be a disqualifying feature on an application, but the lender may look at how much revenue the business is generating. The lender does need some assurance that the loan is likely to be repaid. Depending on the circumstances, collateral may be required for an approval.

The incredibly high rates of interest make it imperative these loans are paid back timely. Otherwise, the costs end up overrunning any perceived benefits. The loan could solve a short-term problem, but create a long-term one.

Review All Options

At some point, a business owner may find it impossible to avoid putting off borrowing. Mostly all businesses have to borrow at some point. The key to successful borrowing is to choose the most appropriate lending option.

Michelle Adams
Business Consultant

Michelle worked at a teller at her local bank while she was earning her degree in economics. Then, after completing an MBA, she came back to the bank as a loan officer. As a result, Michelle is uniquely suited to providing advice to small businesses when it comes to selecting the best loan and credit products.