Business Line of Credit vs. Credit Card: Choosing the Right Business Financing

In the United States, businesses of all sizes – from small startups to established enterprises – often rely on revolving credit to manage cash flow and fund growth. Two common options are a business line of credit and a business credit card.

Both give access to funds up to a set limit, but they work differently. A business line of credit lets you borrow cash up to your credit limit (often by transferring funds or writing checks), whereas a business credit card allows you to charge purchases wherever the card is accepted.

Each has its advantages. Credit cards are ideal for everyday expenses like office supplies, travel, or online purchases and often come with rewards or 0% introductory offers.

Lines of credit are typically used for larger or unexpected needs – such as inventory purchases, payroll shortfalls, or big projects – and generally offer higher borrowing limits with potentially lower interest rates.

In fact, Bank of America notes that “having both a business credit card and a line of credit… is advantageous” because it provides financial flexibility for different situations. The right choice depends on your business’s needs, borrowing history, and expense patterns.

What Is a Business Line of Credit?

A business line of credit (LOC) is a revolving loan with a set credit limit. You borrow (draw) funds from the line as needed (often via bank transfer or check) and only pay interest on the amount used.

Bankrate explains that a LOC is a fixed pool of money you can tap into: “You can withdraw as much as you like up to the credit limit and only the borrowed amount is subject to finance fees.”.

Lines of credit can be secured (backed by collateral like equipment or cash deposits) or unsecured, though large lines usually require collateral or a personal guarantee.

Interest rates on LOCs tend to be lower than credit card APRs. For example, Lendio notes LOC rates can be as low as ~8% for well-qualified borrowers. By contrast, the average credit card APR was about 22.8% in late 2024.

Many LOCs charge interest immediately when you draw funds (with no grace period) and often include an annual fee or maintenance fee. On the upside, LOCs rarely impose cash-advance fees (unlike credit cards).

Key features of a business line of credit:

Higher credit limits. Lines of credit often extend far beyond what a typical business credit card offers. For instance, Bank of America says business LOC limits frequently exceed $250,000 for established companies.
Flexible use. You can use LOC funds for expenses not payable by card – such as vendor invoices, bulk inventory, payroll, rent, or lease payments. Many vendors (e.g. utilities or landlords) don’t accept cards, so a LOC can cover those bills.
Revolving credit. Like a credit card, you repay what you borrow and then that credit becomes available again, subject to annual renewal or review. Bankrate notes LOCs often have a defined draw period (e.g. 1–5 years), after which you repay over time.

Pros and Cons:

Pros: LOCs give quick access to cash for large needs, with lower APR and no collateral for moderate lines. They provide a safety net during downturns or emergencies and can help build business credit if managed responsibly.
Cons: Applying usually takes longer (days or weeks) and requires thorough documentation (financial statements, tax returns). Lenders often ask for 2+ years of operations and strong revenue. Large LOCs may require collateral (blanket lien on assets or deposit). Also, LOCs typically have fees (application, annual, or transaction fees) and usually lack the promotional perks (like 0% APR offers) that some credit cards provide.

What Is a Business Credit Card?

A business credit card is similar to a personal credit card but intended for company expenses. It provides a revolving credit line that you can use at any merchant accepting cards. As American Express explains, “With a credit card, you can make purchases wherever the credit card is accepted” (online or in-person).

After each billing cycle, you pay at least the minimum due; any unpaid balance accrues interest at the card’s APR. Many business cards offer a grace period (often 30 days) during which purchases incur no interest if the balance is paid in full.

Key features of a business credit card:

Quick access and approval. Credit card applications are often approved instantly or within a day, with minimal paperwork. Lendio notes most cards are approved in minutes, whereas a LOC can take weeks.
No collateral, but personal guarantee. Most business cards don’t require physical collateral, but issuers usually require a personal guarantee (making the owner personally responsible if the business defaults).
Rewards and perks. Business cards commonly offer cash back, points, or travel rewards on spending. For example, Bank of America’s Business Advantage cards can earn up to ~2.62% cash back on all purchases for top rewards members.

These rewards can effectively reduce costs. Cards may also include perks like free employee cards, travel insurance, or expense management tools.
Expense tracking and convenience. Charges are itemized on monthly statements, helping separate personal and business spending. You can issue cards to employees with individual limits.

Bank of America highlights that business cards let you “easily download your company’s transactions” for accounting and maintain more control over employee spending.

Pros and Cons:

Pros: Business credit cards are ideal for routine costs (office supplies, subscriptions, travel) and short-term spending. They often carry no interest if paid off each month, and many have no annual fee.

Introductory offers (e.g., 0% APR for 6–12 months) can give cost-free short-term financing. They also help build business credit with on-time payments. Applicants with shorter business history or moderate credit may find it easier to qualify for a card than for a large loan or LOC.
Cons: Credit cards generally have lower credit limits and higher APRs than lines of credit. Lendio notes that credit cards often cap out well below $100K for small businesses, whereas LOCs can exceed six figures.

Card interest rates usually range from ~10–30%; the Fed reported an average APR near 23% in late 2024. Also, certain big expenses (like payroll, rent, or vendor invoices) may not be payable by card.

Some cards charge annual fees (often waived for the first year), and carrying a balance can quickly incur expensive interest.

Key Differences: Credit Line vs. Credit Card

Below is a summary comparison of key attributes:

Feature	Business Line of Credit	Business Credit Card
Access to funds	Borrow cash (via transfer/check) up to limit	Direct purchases at merchants or online
Credit limit	Typically much higher (often $100K+; e.g. ≥$250K)	Generally lower (often $10K–$50K for small cards)
Interest (APR)	Often lower (e.g. some LOCs ≈8–15%)	Usually higher (often 15–30%; average ~22.8%)
Fees	May include annual or draw fees	Many have no annual fee (except premium cards); late fees may apply
Rewards/Perks	Rarely offer rewards programs	Commonly offer cash back, points or miles (e.g. up to ~2.62% cash back)
Collateral	May require collateral or personal guarantee	Typically unsecured (only personal guarantee required)
Approval time	Longer (often weeks; requires documentation)	Very fast (minutes to days)
Use case	Best for larger purchases or cash-flow gaps	Best for everyday expenses, travel, and quick purchases
Repayment	Flexible: interest on amount drawn; often monthly interest-only minimums	Billing cycle; interest if not paid in full each month (often with grace period)

Both a business line of credit and a business credit card charge interest only on what you borrow. In other words, you pay interest on drawn funds or carried balances, not on your full limit.

When to Use a Business Line of Credit

A business line of credit is a versatile tool for uneven or large expenses. Consider using an LOC in these situations:

Seasonal or fluctuating cash flow. If your revenue goes up and down (e.g. retail businesses or tax-prep firms), an LOC can cover shortfalls during slow months.
Big one-time purchases. Use a LOC to pay for large items like equipment, machinery, or expansion projects when you need more than a card’s limit. For example, a restaurant buying $50,000 of kitchen equipment would likely need a LOC if credit cards cap out.
Inventory or bulk buys. When suppliers offer discounts for volume purchases, an LOC lets you buy inventory in bulk without draining cash reserves.
Emergency or unexpected expenses. An established line is like a cash buffer for repairs, emergencies, or unforeseen bills (e.g. urgent equipment repair, natural disasters).
Vendor/payroll payments. Some vendors or services (like payroll or rent) won’t accept credit cards. An LOC lets you write checks or transfer money to cover these recurring obligations.
Growth opportunities. If a sudden opportunity arises (e.g. you need fast funds to secure a business deal or pop-up market), the LOC gives immediate access up to your limit.
Building business credit. Responsibly using and repaying a LOC can help establish a credit history for your company, which may improve financing terms over time.

When to Use a Business Credit Card

Business credit cards shine in day-to-day spending and manageable expenses. These scenarios favor a credit card:

Ease of approval: Startups and new ventures often get approved faster for a credit card than for a large LOC. Many credit card issuers consider personal credit history and offer cards to newer businesses or sole proprietors.
Routine expenses: Use a credit card for office supplies, fuel, software subscriptions, meals, and travel. These purchases are easily charged to a card and help keep personal and business spending separate.
Travel and employee spending: Business credit cards (especially travel rewards cards) facilitate booking flights and hotels and often waive foreign transaction fees. You can issue employee cards with set limits, making it easy to track and control staff expenses.
Rewards and cash-back: If you incur regular expenses (e.g. monthly utilities, vendor subscriptions) on a card you pay off monthly, you can earn significant cash back or points. For example, Bank of America’s cash-back cards and many others offer bonus rewards that effectively reduce costs.
Short-term financing: Cards often have an interest-free grace period (e.g. 30 days) and promotional 0% APR offers for new users. This makes them useful if you need a quick loan for small amounts that you can repay soon.
Low-amount purchases: When expense amounts are modest (hundreds to low thousands of dollars), a card is more convenient. The approval and setup are quick, and the transaction is instantaneous.
Building credit history: Regular on-time payments on a business credit card help build your business credit score, which can make qualifying for other loans or lines of credit easier.

Comparing Costs and Terms

Feature	Line of Credit (LOC)	Credit Card
Interest (APR)	Typically lower (often prime-based; some as low as ~8–15% for qualified borrowers).	Higher (often 15–30%; ~22.8% on average).
Credit limit	Higher limits (commonly $50k–$250k+ for established businesses).	Lower limits (often $1k–$50k for small companies).
Use of funds	Funds transfer directly to your bank; pay vendors by check/debit.	Direct purchase using card at any merchant.
Fees	May include application fees, annual fees, or draw fees.	Often no annual fee for basic cards (premium cards may). Late fees, cash advance fees apply.
Repayment	Flexible: pay interest-only or principal + interest (depending on terms). No grace period on drawn funds.	Monthly billing: at least a minimum payment; interest accrues on unpaid balances (grace period on new purchases if previous balance paid).
Rewards	Rarely offer rewards programs.	Commonly offer cash back, points, or travel miles (e.g. 1–2.5%+ back).
Secured vs. Unsecured	Can be secured (asset-backed) or unsecured (personal guarantee).	Usually unsecured (only personal guarantee required).
Approval time	Days to weeks (requires detailed review of finances).	Minutes to a day (quick online or in-branch approval).
Best for	Large, irregular, or non-card expenses (inventory, payroll, bulk orders).	Small/recurring expenses, travel, consumables, short-term needs.

Table: Comparison of business lines of credit vs. credit cards. Sources: Bank of America, Lendio, American Express, Bankrate, SBA.

Which Option Is Right for Your Business?

There is no one-size-fits-all answer – many businesses benefit from having both a line of credit and a credit card, using each where it fits best. Generally:

New or small businesses may start with a business credit card. Cards require less history and documentation, and you can begin earning rewards immediately.

As Bank of America notes, even sole proprietors can get a BOA business card by using an SSN (no formal business registration needed). Just remember that card approval typically depends on your personal credit (BOA often expects a score around 670+).
Growing or established businesses with a steady cash flow may qualify for larger lines of credit. If you find yourself frequently maxing out credit cards or facing sizable expenses, applying for a LOC might be wise.

For example, AmEx suggests seeking a line when “your business credit card limit is too low for your needs”. Approval will take longer (often 1–2 weeks) and require financial statements, but a LOC can cover costs that cards cannot.
Expense type matters. Use a credit card whenever feasible for day-to-day costs and travel – you get convenience and rewards. Reserve the LOC for larger or irregular bills (like equipment purchases, vendor invoices, or payroll gaps).

Bankrate’s example illustrates this: a restaurant needing $50,000 in equipment would turn to a LOC, whereas a $1,000 advertising expense (payable in 30 days) is better on a credit card (especially if you have an intro APR offer).
Combine strategies. Experts agree on pairing both products. As American Express puts it, “Both types of funding options have advantages and disadvantages, and many businesses will have both a business credit card and a line of credit to cover certain expenses”.

For instance, you might draw on a LOC for seasonal inventory, and charge routine operational costs to a rewards card. Regardless of your choice, use each tool wisely and pay balances on time to minimize costs.

Be sure to shop around: interest rates, fees, and terms vary by lender and card issuer. Always compare APR, fees, credit limits, and rewards programs.

It’s also wise to speak with a banker or financial advisor about your specific situation – many will recommend the optimal mix of credit products for your business needs.

Frequently Asked Questions

Q: What exactly is the difference between a business line of credit and a business credit card?

A: Both provide revolving access to funds up to a credit limit, but they work differently. A business line of credit is like a bank loan that you draw cash from as needed; you then repay and can re-borrow. A credit card directly pays merchants up to your card limit.

Lines of credit often carry lower interest rates and higher limits, whereas credit cards are more widely accepted and often offer rewards. In practice, lines suit larger or non-card-able expenses, while cards are best for routine purchases and smaller payments.

Q: Which has a lower interest rate – a line of credit or a credit card?

A: Generally, a business line of credit has a lower APR than a business credit card. For example, Bank of America notes LOC rates tend to be lower, whereas business credit cards can charge over 20% APR.

Bankrate and American Express data confirm this trend: credit cards averaged ~22.8% APR as of late 2024, while some LOCs start in the single digits. Actual rates depend on creditworthiness and market rates, but cards typically cost more if balances are carried.

Q: Can I use a credit card or line of credit to pay any expense?

A: Not always. Credit cards work where cards are accepted (stores, travel sites, some online services), but many businesses (like landlords, some suppliers, or utilities) don’t accept cards.

A line of credit, on the other hand, gives you cash or bank transfers, so you can cover any expense that requires a check or bank payment. Conversely, there’s no need to draw a LOC for small purchases; you could just swipe on a card.

Q: Which is easier to qualify for – a business line of credit or credit card?

A: Typically, a business credit card is easier to obtain. Card issuers often only need a personal credit check and basic business info, and decisions can come within minutes. Lines of credit usually require more business documentation (financial statements, tax returns) and time.

SBA and lender guidance suggests banks want at least 2 years in business and healthy revenue for an LOC. On the other hand, some alternative lenders will issue LOCs to businesses with weaker credit or shorter history, albeit at higher rates.

Q: Can my business have both a credit card and a line of credit?

A: Absolutely. In fact, many financial advisors recommend using both. A business can open a credit card (or several cards) for daily purchases and cards can build credit, while also securing a line of credit for larger needs.

As AmEx notes, “many businesses will have both a business credit card and a line of credit…depending on their needs”. You only pay interest on the money you use – whether on card balances or LOC draws – so it can be wise to leverage the strengths of both.

Q: What about Bank of America (BOA) business credit cards?

A: BOA offers several Business Advantage credit cards (cash-back, travel, or choice rewards). These cards work like any business credit card. For example, BOA’s Unlimited Cash Rewards card offers a base rate (about 1.5 – 1.87% back) plus bonus tiers that can boost cash-back to ~2.62% on all purchases.

To qualify, BOA typically requires a registered business and a decent personal credit score (around 670 or higher). Using a BOA business card helps separate personal and business expenses and can earn rewards, but it still has the same limitations as other cards (higher APRs and lower limits than a large LOC).

Q: Is a line of credit better for a startup?

A: Startups often begin with business credit cards rather than lines of credit, simply because credit cards are easier to get with limited history. Banks may require at least 1–2 years of operations for a substantial LOC.

However, small LOCs or startup-friendly lenders do exist. Ultimately, if you have strong personal credit or early revenue, you might qualify for a modest line; otherwise a card is the usual entry point. As your business grows and financials improve, you can pursue a larger LOC to expand your borrowing capacity.

Conclusion

A business line of credit and a business credit card are both valuable tools in managing working capital – each with its place. A credit card offers convenience, rewards, and quick access for everyday spending, while a line of credit provides large, flexible funding for bigger needs or cash flow gaps.

Most businesses can benefit from using both: charge routine expenses to cards (maximizing any rewards) and tap a line of credit for major purchases or payments that don’t accept cards. Be mindful of the costs – use a card only if you can pay it off (to avoid high APR), and treat your LOC as a resource for when you truly need it.

By understanding the differences and matching them to your company’s spending patterns, you can choose the right combination of financing to keep your business growing smoothly.