An Epic Guide to Business Credit Cards, Charge Cards, & Lines of Credit

An Epic Guide to Business Credit Cards, Charge Cards, & Lines of Credit
Eric Goldschein
on February 2, 2017
Read in 5 min

If you’re a small business owner, you know how important it is to always have extra capital on hand so you can deal with whatever life throws at you.

Unless you have stash of cash under your mattress, you’ll probably want to obtain working capital at some point or another.

You have a number of options on that front, including term loans, equipment financing, and several different types of business credit.

Three of the most common ways that business owners access credit are through business credit cards, business charge cards, and business lines of credit.

Quick Look: Comparing Business Credit Tools

Credit TypeAmountCostTermsTime to Funding
Business Line of Credit$10,000 - $1 M7 - 25% APR6 months - 5 yearsAs little as 48 hours
Business Credit CardsUp to $50,000Intro APR 0% - 24.99%Revolving credit, usually paid monthlyAs little as 60 seconds
Business Charge CardsNo predetermined spending limitAnnual fee + late payment feesPay balance in full every monthAs little as 7 days

But think about it:

Do you really understand the advantage of choosing one over the other?

This article will help you distinguish between these types of business credit, including:

  • differences between personal credit cards and business credit cards
  • differences between a business line of credit and business a credit card
  • differences between a charge card and a credit card for business

We’ll start with an overview of exactly what a business charge card, credit card, and line of credit (LOC) actually do, then we’ll outline why a small business owner may want to choose one over the other.

After that, the choice is yours.

What is a Business Credit Card?

A business credit card is very much like a personal credit card, but it’s meant to be used for business purposes only (even if that business is a sole proprietorship!)

Personal Credit Cards vs. Business Credit Cards

  • At the most basic level, a business credit card helps keep your personal and business spending separate, which is helpful for tax and accounting purposes.
  • But business credit cards often come with unique perks, depending on the kind of card you have, how you often spend your money, and the kind of charges you put on your card.
  • Business owners who maximize their business credit card program can score cashback rewards when buying from certain vendors, bonuses resulting from business travel expenses, and even flexible repayment terms– a boon to small businesses with irregular cash-flow.
  • What’s more, business credit cards often have higher spending limits than personal cards.

A couple other things to keep in mind when thinking about applying for a business credit card:

Typical consumer protections aren’t always available to business credit cards (for example, APR has been known to change “overnight” for some business cards.)

Plus, don’t forget that both your business credit and your personal credit can be affected by how well you manage your business credit spending.


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What’s a Business Charge Card?

A business charge card is also similar to a credit card in that:

  • It gives you access to an unsecured line of credit.
  • It allows you to earn rewards like points, cash back, and airline miles–though some charge cards offer rewards that surpass even what a credit card can provide.
  • It’s subject to late fees or annual fees (usually $95, or more) depending on the card.

Charge Cards vs. Business Credit Cards

There are two main, interrelated ways that charge cards differ from credit cards.

  • With a charge card, there is no interest, because you don’t roll over what you spend from month to month.
  • You must pay the balance on your charge card every month or be subject to a late fee.
  • Because of this, there is also no predetermined spending limit on a charge card: The issuer will put some boundaries on how much you can spend, but it isn’t a set number when you’re first approved.

What is a Business Line of Credit?

While people tend to think of a business line of credit as the same as a business credit card, we prefer to think of it like a stripped down version of a credit card.

A line of credit is essentially a loan of an approved amount of money (say, $50,000) that you can draw from as needed, and either pay back immediately or over a repayment schedule that you agree to beforehand.

Line of Credit vs. Credit Cards for Business

An LOC allows you to draw funds and immediately place them in your business bank account for use, but it lacks some of the perks of credit and charge cards.

  • Don’t expect any reward programs or cash back, for example— but it makes up for this in other ways, such as less restrictive cash advance rules and less onerous fees.
  • As mentioned above, charge cards and credit cards are access to unsecured credit. Lines of credit can be either secured or unsecured.

Secured credit is backed by assets or collateral, such as property or inventory, and is usually required if you aren’t assessed to be creditworthy enough for an unsecured loan.

Unsecured lines are extended because you have satisfactory credit scores, borrowing history and other factors.

Breaking Down Your Small Business Credit Options

As you can see, each form of credit has its advantages, disadvantages, and limitations.

Though some of them have been discussed above, here’s a quick rundown for each choice:

Business Credit Cards

  • Pro: You can revolve your outstanding debt until the following month, or months, making minimum payments.
  • Pro: There are more credit card issuers than charge card issuers, giving you more options.
  • Con: By not paying off your balance in full each month, you run the risk of paying high interest rates.
  • Con: Preset spending limit can prevent you from making all the purchases you want in a given month.

Business Charge Cards

  • Pro: No preset spending limit means you can spend what you need to if unexpected costs occur.
  • Pro: Assuming you pay off your balance on time, you won’t owe anything else to the issuer, as there are no interest fees.
  • Con: Charge cards almost always have an annual fee; not so for credit cards.
  • Con: Late payments can be more expensive on charge cards.
  • Con: Because American Express is the “primary issuer” of these cards, they tend to be harder to qualify for.

Business Line of Credit

  • Pro: Interest rates on lines of credit tend to be substantially lower than those for credit cards.
  • Pro: Minimal fees and charges are associated with a line of credit.
  • Pro: Less regimented payment options than credit cards.
  • Con: No rewards program to earn back some of what you spend.
  • Con: If you have a secured line of credit, you run the risk of forfeiting your assets or collateral in case of nonpayment.

Final Thoughts on Credit Cards for Small Businesses

There are clearly lots of factors to consider when deciding between a business credit card, charge card, or line of credit.

To make it easier, see if you generally fall into one of these categories:

  • If you like flexibility in repaying your credit, enjoy reaping rewards like airline miles or deals from certain vendors, and don’t run a high balance every month (which can affect your FICO score), consider a credit card.
  • If you don’t want to worry about a credit limit, find yourself always paying your credit card bill off in full at the end of the month, and still want to reap traditional benefits while building a solid credit portfolio, a charge card may be for you.
  • If you want the benefits of revolving credit access without risking high interest rates and other fees and don’t care about rewards, a line of credit is a good choice.

Keep in mind that, with good credit, you may even be able to use a combination of these choices.

Just make sure to stay on top of your finances– access to credit should help, not hinder your business.

Now go forth and invest in yourself with the help of some outside cash.

Eric Goldschein Finance Journalist

Eric Goldschein is a freelance journalist who covers entrepreneurship, small business trends, emerging technologies, culture and sports.

He was previously the managing editor of SportsGrid.com, and has written for Business Insider, Trep Life, the Huffington Post, Fundera and more.

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