Article summary: There really is no such thing as a credit line on credit cards. What you are actually getting is a cash advance. For small businesses with less than $5 million in annual revenue, getting a line of credit in place is the best way to go.
Highlights
- What you are really getting is a cash advance on your business credit cards.
- Getting a credit line on credit cards is almost as difficult as applying for a business bank loan, as you will be asked for additional documentation and updated income statements.
- In addition to the extreme cost, this decision will significantly impact your credit score.
- The best option is a business line of credit.
What You Need to Know about a Credit Line on Credit Cards
For every business, there comes a time when you simply need more cash. Some businesses think the problem can be solved by getting the credit card company to increase their limit so they can withdraw more money.
Of course, when you have been in business for a while, you know that this type of thinking is all kinds of wrong. Since practically everything you do in business is tied to your credit, the last thing you want is to make decisions that will lower your credit score.
Getting a credit line on credit cards comes with an astronomical cost as far as the interest you will pay, which is different than the interest you would normally pay for regular charge card purchases. This type of hassle is not worth the small amount of money you will have access to.
Therefore, it may be time to consider other options.
Is a Business Loan better than a Credit Line on Credit Cards?
Small business loans and business credit cards are popular options for short term business funding, but for different reasons. It’s vital to consider how you plan to use each, and the strength of your business finances when making this decision.
While a business credit card might be great to track employee expenses, the fees can be high. In addition, it typically requires a personal guarantee. A business loan is best for expansion, large capital purchases and long term investments.
The biggest disadvantage of a business bank loan over a credit line on credit cards is that a bank will always require collateral. Unfortunately, most small businesses just don’t have enough of the type of collateral banks want.
For instance, you can use your accounts receivable as collateral. However, the bank will not count all of them. The best you can hope for is that they accept at least a percentage.
Getting a business loan from a bank can be ideal in certain circumstances…if you have the time. In truth, it is a difficult, frustrating and time consuming process. In the end, perhaps neither option is right for your business.
Why You Should Get a Line of Credit Instead of a Credit Line on Credit Cards
1. A line of credit gives you access to working capital whenever you need it.
2. You get higher limits with a line of credit.
3. Thanks to the proliferation of alternative lenders, qualifying for a line of credit is now easier than ever.
4. Overall, a business line of credit may turn out to be your least expensive choice. At Financing Solutions (www.financingsolutionsnow.com), their line of credit product is easy to get in place and you pay nothing until you actually withdraw money, making it the best backup plan. Every business should have one, just in case.
