June 14, 2023

Business credit card vs. small business loan: what you need to know

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The decision between taking out a business loan vs business credit card is common for entrepreneurs and small business owners. Finding what works best for your situation is key to the success of your business.


Here is a comparison of the pros and cons of each option to help you better understand the differences.

What is a business credit card?

A business credit card is a type of credit card that is specifically designed for business owners and entrepreneurs. This type of card allows businesses to make purchases on credit, which simplifies the process of managing cash flow and expenses.

Business credit cards typically have more favorable features than traditional consumer cards, such as higher spending limits, rewards points, and access to exclusive business-related benefits.

Application process and eligibility requirements

The application process and eligibility requirements for business credit cards vary greatly from lender to lender. However, some key factors will impact the decision of whether or not you qualify. These include:

  • Credit score: Lenders will review your business credit score when deciding if you are eligible for a business credit card. Generally, lenders prefer applicants with higher scores as this is an indication of a financially healthy company.
  • Business revenue and profitability: A look into your business revenue and profitability can help lenders determine the creditworthiness of your business. They will want to see that you have a steady stream of income and that your business is making a profit.
  • Years in business: The longer your business has been in operation, the more likely it is that the lender will approve it for a business credit card. This is because lenders want to ensure your business is stable and has a track record of success.

If you meet the eligibility criteria of the lender, then you will have to provide some additional information, such as:

  • Your business name and contact details
  • The category and type of your business
  • The structure of your business
  • Business Federal Tax ID
  • Business revenue and expenses

Pros of using business credit cards:

  • Convenient and easy to use: Business credit cards are easy to apply for and use.
  • Access to funds quickly: You can access the funds almost immediately after approval, making it a great option for businesses that need access to short-term credit.
  • Rewards programs: Many business credit cards offer rewards and cash-back programs.
  • Usage flexibility: You can use the funds for whatever your business needs, such as office supplies and travel expenses.

Cons of using business credit cards:

  • High interest rates: Business credit cards generally have higher interest rates than other types of financing, ranging from 13 to 30%.
  • High fees: Business credit cards often come with high annual fees, late payment fees, foreign transaction fees, and other hidden costs that can add up quickly.
  • Debt accumulation: It is easy to get into debt with a business credit card if it is not used responsibly.

What is a small business loan?

A small business loan is a type of loan specifically designed for small businesses. Small business loans are typically provided by banks, credit unions, or online lenders and can be used to fund a wide variety of business needs. These include starting a new business, expanding an existing company, or purchasing equipment, inventory, and supplies.

Application process and eligibility requirements

The process of applying for a small business loan may differ among lenders but usually involves submitting specific documents, including:

  • Business plan
  • Tax returns
  • Bank statements
  • Cash flow projections
  • Financial statements

Eligibility requirements for a small business loan vary depending on the lender, but generally, you will need to demonstrate that your business is profitable and well-established. Lenders may use the following criteria to determine your eligibility:

  • Years in business
  • Cash flow and assets
  • Business credit score
  • Ability to repay the loan

Pros of taking out a small business loan:

  • Low interest rates: Small business loans typically have lower interest rates than business credit cards, ranging from 6.5 to 13.5%.
  • Large loan amounts: You can typically borrow up to $5 million with a small business loan.
  • Long repayment terms: Small business loans usually have longer repayment terms than business credit cards.

Cons of taking out a small business loan:

  • Strict eligibility requirements: Getting approved for a small business loan can be difficult due to strict eligibility requirements such as a high credit score and income history.
  • Collateral required: Most small business loans require some form of collateral, such as real estate or business assets.
  • Long application process: The application process for a small business loan can be long and complex, taking several weeks to complete.

The differences between a small business loan vs credit card

Here’s a quick comparison of the main differences between a business loan and a business credit card:

  • Interest rates: A small business loan typically has a much lower interest rate than a business credit card. However, business credit cards may offer rewards and cash-back programs that can provide significant savings.
  • Loan amount: Small business loans generally allow you to borrow more than a credit card. Most business loans can cover up to $5 million, while most business credit cards have limits of around $50,000.
  • Repayment terms: Small business loans usually require regular payments over a set period, while business credit cards allow you to pay off the balance in full or in smaller payments over time.
  • Eligibility requirements: Due to stringent eligibility requirements, small business loans can be difficult to get approved for. Business credit cards, however, typically have fewer eligibility requirements and better approval odds.
  • Risks: Small business loans require collateral, and failure to meet payment requirements can put your assets at risk of foreclosure or repossession. Business credit cards, on the other hand, can lead to serious debt if not used responsibly.

How to choose the best financing option

While your company’s needs are unique, there are some factors all business owners should consider when deciding between a small business loan vs credit card:

Funding needs

The amount of money you need will be a key factor when deciding which financing option is best for you. Business credit cards generally offer lower borrowing limits than small business loans, so if you need to borrow a larger amount of money, a small business loan is your best bet. While a small business loan can cover up to $5 million, most business credit cards have limits of around $50,000.

Credit score

Before applying for either type of financing, check your business credit score to ensure you will be eligible. Business credit cards generally have lower eligibility requirements than small business loans, so if your credit score is on the low side, a business credit card may be a better option.

Interest rate

The interest rates of small business loans and business credit cards can vary significantly depending on your creditworthiness. Weigh the interest rates carefully before deciding which one is right for you.

Repayment terms

If you need to borrow money on a short-term basis, a business credit card may be your best option. If you need to borrow for a longer period, then a small business loan may be the better choice. This is because small business loans typically have longer repayment terms than business credit cards. It is also important to consider your business budget and how much room you have for the monthly payments required.

Ramp: Your automated financing solution

At Ramp, we understand the complexities of small business financing and have created a platform to help businesses save time and money. Our automated solution helps business owners manage their finances, track expenses, and get access to credit quickly and easily. With Ramp, you can access corporate cards that work just like regular credit cards but with extra benefits to make it easier to keep track of spending.

Get Ramp today and take control of your business financing.

Content Marketing Manager, Ramp

Richard Moy is an experienced freelance Content Marketing Manager supporting Ramp. Prior to joining Ramp, he served as a content marketer and editor at BetterCloud and Stack Overflow.

Ramp is dedicated to helping businesses of all sizes make informed decisions. We adhere to strict editorial guidelines to ensure that our content meets and maintains our high standards.


Are there any alternatives to using a business credit card or small business loan for financing a small business?

The most common risks include:

  • Many of these loans come with daily payment requirements, which could cut into your cash flow.
  • Those that don’t require daily payments, like invoice factoring, can be pricey.
  • Some loans that don’t require credit checks require collateral, which could mean the loss of equipment, vehicles, or even your home if you don’t pay your bill on time.
What are the risks associated with using a business credit card or taking out a small business loan?

Both business credit cards and small business loans come with risks. With a business credit card, you run the risk of accumulating too much debt if it is not used responsibly. With a small business loan, you risk foreclosure or repossession of your assets if you fail to meet payment requirements.

Can I use a business credit card or small business loan to finance startup costs for a new business?

Yes, you can use both business credit cards and small business loans to finance startup costs. However, for a new business, it is important to understand that lenders may hesitate to provide financing due to the lack of credit history and financial information.

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