This article contains general information and is not intended to provide information that is specific to American Express, or its products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Differences between a line of credit and a credit card
Both a line of credit and a credit card essentially lend you money and require you to pay it back with interest and/or fees. Both lending products involve revolving credit, meaning you are approved for a certain amount of borrowing. You then use your line of credit or your credit card as you need them, as long as you remain under your borrowing limit. As you repay your line of credit or credit card, this can free up room for new borrowing, subject to your credit limit (which your lender may change).
Here are some differences between the two types of options to consider to help determine which may be best for your business.
Accessibility
A key difference between a credit card and a line of credit is how you use each product. With a credit card, you can make purchases wherever the credit card is accepted, in person or online. With a line of credit, you borrow funds directly from your lender.
With many lines of credit, once you transfer the funds you’ve drawn from your line (in the form of an individual loan) to your bank account, you can write checks, or use your debit card, or withdraw cash from your bank.
Interest Rates and Fees
Credit cards charge varying interest rates. According to the Federal Reserve, the average Annual Percentage Rate (APR) for credit card debt was 22.80 percent as of November 2024. The interest rates and/or fees on a small business line of credit may vary from lender to lender and may be higher or lower when compared to a credit card. Applicable interest rates or fees could be based on various factors, including your credit score.
Some small business lines of credit do not have fees for early repayment. Late payment fees for lines of credit and credit cards vary.
Credit Limits
Credit limits between lines of credit and credit cards can vary. Be sure to check the amount of available credit an option will provide you before applying and know that you may not be approved for the full amount a lender is able to offer.
Is it better to have a line of credit or credit card for business?
Credit cards and a business line of credit are used by small business owners to access funding. Businesses may use both to cover various expenses. In deciding whether to use these types of credit, you may want to consider the type of payment, how much you need to cover the expense, and how much time you need to repay it.
When to use a business line of credit
If your business credit card has a credit limit that is too low for your business needs, you may want to explore applying for a line of credit that may have a higher limit. Available limits for these products vary from lender to lender.
Be prepared to provide additional documents to your lender to support any application for credit.
When a credit card could help fund a business
A business credit card could help cover smaller expenses and purchases that don’t require cash payments. For instance, if you’re paying for travel expenses on an upcoming business trip for multiple employees, you may need a credit card to secure a hotel room and at check-in to cover incidental expenses during your stay.
Credit Card or Line of Credit: Which is right for your business?
Both types of funding options have advantages and disadvantages, and many businesses will have both a business credit card and a line of credit to cover certain expenses, depending on their needs. Be sure to talk to your lender to understand the features of their products.
American Express offers the American Express Business® Line of Credit, which may have different features and terms from the lending products that are discussed in this article.
Business Line of Credit FAQ
Is a line of credit helpful for a small business?
A small business that’s looking to improve their cash flow[MM1] or wants to invest in their business may find that a line of credit for a small business could help them reach these goals. With a line of credit, a business could get access to funding on an as-needed basis up to their approved credit limit and may be able to pay it back earlier with no prepayment penalties.
Make sure to study the features and costs of any loan product before you decide.
The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
[MM1]Links to Blueprint "Business Cash Flow" Article
