However, if the expenses can be covered with credit, you may prefer to go with a credit card. If the expenses require cash-on-hand, then a business line of credit would be a better option for you. If you’re trying to decide between a business line of credit or a business credit card, think about what expenses you are looking to get covered.
Both credit cards and lines of credit have a credit limit that can’t be exceeded. While a business credit card will continue to revolve so long as you make the minimum payment, a line of credit must be paid back within the amount of time agreed upon with your lender and expires after an agreed period. There are, however, more defined terms on a line of credit.
A line of credit, on the other hand, offers more flexibility on approval amounts, typically has lower interest rates, and can be used to pull cash into your operating account to cover operational expenses or address seasonal revenue shortages. When it comes to credit limits and terms, business credit card approval is mostly based on your personal credit score. If youve built up equity in your home, a Home Equity Line of Credit will reward you for your diligence with low interest rates that let you borrow against. you can’t use a business credit card to cover your payroll). For starters, a standard business credit card functions similarly to a personal credit card, in that you can’t just draw cash directly from the card account into your operating account to cover an expense (i.e. Lines of credit all you to balance cash flow off-season and keep your operations running smoothly.Ī: There are a few major differences between a business line of credit and a business credit card. Whether you’re facing a crisis or an opportunity, a line of credit gives you on-demand access to working capital to navigate almost any situation.īusiness seasonality can cause a cash crunch during slow times. While the overall interest rate of a line of credit can be higher than a term loan, you only pay interest on the portion of the available money you use.Ĭredit card rates and fees can be astronomical, but rates associated with a line of credit are typically lower, starting at just 13%. Lines of credit are a revolving type of financing, meaning that businesses can pay off balances as they go and then use the credit again as needed. Businesses can qualify with a 650+ personal FICO, and funds can be disbursed in as little as 24 hours. Lines of credit have less stringent requirements than a term loan. Small Business loans require payment even if you aren’t using the cash but with a business line of credit, you only pay for what you use. Have access to working capital reserves to manage daily operations or cover unexpected business expenses, even during your slow seasons. With an expedited application process, affordable rates, and flexible repayment schedules (weekly or monthly), having reliable and continuous access to cash flow has never been simpler. For the times you don’t want or need a large lump sum and the long-term commitments that come with a small business loan or the times when a business credit card is just not the right choice for the health of your business, a business line of credit may be exactly what you need. Is this a tool that could work for you? Talk to your RBC advisor today.Having additional access to working capital is always a best practice when running a small business. Sarah and Jack have made great everyday use of their line of credit to: - Take advantage of opportunities like a seat sale to Paris with the lower interest rate of their line of credit - Improve their cash flow by switching balances and reducing their monthly interest costs with a lower interest rate That way they get the points and reduce their monthly payments and interest costs until the next commission cheque comes in. And when money’s tight in a given month they pay off the balance with their lower rate line of credit. They put many of their everyday purchases on their travel rewards card – getting them closer to that dream trip to Paris. RBC Clients Sarah and Jack have found that using a line of credit helps them manage their everyday expenses, save money and improve their cash flow.Ī big part of Sarah’s income comes from quarterly commissions – and having cash on hand can be tough during those “in-between” months.
Why a line of credit? Flexibility and Cash Flow!