Do I Need a Business Credit Card or a Loan for my Small Business?

23 Dec 2021

Do I Need a Business Credit Card or a Loan for my Small Business?

When and where to get funding is a common concern among small businesses. The £56 billion funding gap for UK SMEs only makes matters worse. Among the variety of potential financing options for small businesses, loans and lines of credit are top of mind for small business owners.

But which of the two would be better for your business? That will depend on your individual business, your current circumstances, and other factors such as your business credit score. Let’s delve into it a bit further.


When do Small Businesses Seek Funding?

Unless the business owner has enough of either their own or investors’ money to self-fund, most small businesses need some type of financing in the startup stage. But brand new businesses can find it particularly hard to secure external funding, with many loan sources, for example, requiring an excess of information, personal guarantees, and collateral.

There are also going to be ongoing funding needs as the business grows. Things like day-to-day working capital, the purchase of assets or real estate, refinancing existing business debt, and funding for growth activities like hiring more staff or increasing your offerings.

Depending on your circumstances and the purpose of the funding, either a business loan or a business credit card could be the right option.


Small Business Loans

Business loans are often for higher amounts than credit cards, but like any credit source the amount you can borrow will depend on your creditworthiness. And for small businesses with little credit history this can be an issue, particularly at their startup stage.

There are good deals to be had on business loans, and interest rates vary greatly, depending on the lender. There’s a dizzying array of loan sources and options available, so shopping around is key, which can be a daunting task.


Business Loans Can Be Stringent, and Somewhat Slow

The main drawback of a loan in comparison to a credit card or line of credit is that it's a one-time deal. You receive a lump sum to use for whatever your needs are, but once that’s been used you need another loan, which means going through another loan application process.

Loans are typically harder to get approved for than credit cards, and lenders might require collateral. Businesses looking for quick funding might struggle, because funding can take a long time. But for large, one-time investments like buying commercial property or refinancing existing business debt, a loan might be a logical option.


Small Business Credit Cards

Credit cards generally offer lower credit amounts, but as revolving lines of credit, they can be used flexibly and virtually at any time. The added flexibility business credit cards provide protects working capital, manage ongoing expenses, and stay prepared when unexpected ‘emergency’ expenses arise.


Build or Maintain Your Business Credit Score

Some business credit cards can also be kinder to your business credit score, particularly if you choose one that offers a ‘soft-search’ function when you apply, so your score isn’t impacted by the search. And of course, regularly using and paying off credit in this way can really help to build small business credit, which can be invaluable for small businesses looking to scale and grow.

Lending decisions are generally faster for credit cards, so the funding is there when the business actually needs it, rather than weeks down the line. And choosing the right small business credit card can come with rewards such as cashback, points, or discounts, which can be incredibly beneficial.


Issue Unlimited Business Credit Cards to Employees

Another feature that’s unique to cards is the ability to have multiple individual cards and issue them to your employees. Not only does this empower and demonstrate your trust in your employees—something that’s crucial in maintaining loyal and productive employer/employee relationships—but it’s an easy way to track business expenses and spending. By setting individual spending limits you can manage budgets and business and individual spending.


Running a Business is Hard, We Make it Easier

For convenient, immediate purchases and the ability to better manage your cash flow, small business credit cards are the number one choice in the financing stakes.

Choosing a provider like Capital On Tap that offers rewards, perks, and other benefits that are tailored towards small businesses gives you a solid source of financing that suits your individual business needs.

Written by: Capital on Tap
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