Should You Use a Business Credit Card in Place of a Business Loan?

Meredith Wood

Meredith Wood

Editor-in-Chief at Fundera
Meredith is Editor-in-Chief at Fundera. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
Meredith Wood
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Throughout the course of a small business’s life, there will almost always come a moment when the owner is plagued with answering a very, very difficult question: “How do I finance my business?

This question can come about for a number of reasons—whether the business owner has hit a cash crunch, needs capital to pursue a specific business opportunity, they’re looking to expand, etc.

No matter the reason, it’s never easy to decide if debt is the solution.

In these situations, you should perform a cost-benefit analysis. Do this in order to ensure that your total cost of incurring the capital (APR, origination fee, closing costs) is less than what you stand to gain from the investment.

If you’ve decided “Yes,” my business needs financing to achieve its goals, your next step is to find the best product for your situation.

There are numerous products available to business owners, from bank loans to SBA loans to invoice financing. But, one product that business owners tend to forget to include in their comparisons? Business credit cards.

It’s a hot topic — are business credit cards a good source of funding for small businesses? Many people will tell you, without pause, “NO!”

But, to be honest, it’s not necessarily that simple. There are many situations in which a business credit card should be considered an option in place of a business loan. There are even some situations in which a business credit card is hands down the best option.

TL;DR: Credit Card, Business Loan, or Both: How Should You Finance Your Business?

In certain scenarios, it will be better for your business to get financing from a business credit card than from a business loan. Thanks to long lists of perks and capabilities, business cards are becoming more small business friendly than ever.

Charge cards, with their flexible spending limits, will be ideal for business owners who need a little working capital wiggle room, but who are certain that they’ll be able to pay off their balance by the end of their statement cycles.

Meanwhile, 0% intro APR business credit cards, like the Blue Business Plus and the Ink Business Cash, will work much like a free business loan for a certain amount of time, allowing businesses to carry free balances during their first months with the card.

Finally, if you’re able to find a business credit card with a lower APR than your loan offer, then it could very well be a far more affordable option for financing your business.

Here are three instances that business credit cards can be just as good of an option, if not better, than a small business loan

1. Charge Cards

Let’s use this example:

You’re a strawberry farmer in California. You do good business, as your strawberries are the absolute tastiest (bravo). However, you just got a huge, unexpected order from Driscoll’s. They need the order fast, but it’s so large you don’t have the cash flow to get it done. So, you consider taking out some financing to make it happen. Here’s the thing — you’re a rockstar borrower. Great credit score, strong revenues, good cash flow. Where do you go for a loan?

Well, you’re obviously bankable, but you need the money in a matter of days to make this happen. And you know that working with a bank will take weeks if not months. If you already had a line of credit at your bank, this would work perfectly, but, unfortunately, you do not.

So, you decide to try online lending. You know that the options will be pricier. But you also plan on paying off the debt as soon as Driscoll’s pays you. But, as you start to shop, you get sticker shock from the APRs you’re seeing. As a top-tier borrower, you refuse to consider anything that doesn’t have single-digit interest rates. And, yes, you plan on paying it off early. But the fact is you’ll still have to pay some interest, and some of these products have prepayment penalties.

This is where charge cards come in. If you need money upfront to make a business deal happen, and you know you’ll have the cash to pay it back in a matter of weeks, then this is a serious source of financing to consider.

For example, take American Express’s business charge cards. With their charge cards, there is no pre-set spending limit. Because of this, you don’t have to worry about qualifying for a certain loan amount. You’ll get the amount you need to get the job done. All you have to do then is to pay the balance in full by the end of the month. Or, you can look at the Plum card specifically. This charge card gives you 60 days to pay and even gives you an incentive if you pay early.

The Plum card, however, will have a spending limit.

The plus side, outside of what is essentially an interest-free 30-day loan, is that you can be earning rewards and building your business credit at the same time.

When do charge cards not make sense? If you don’t feel you could confidently pay off the balance at the end of every month, then a charge card is not for you. Having strong business cash flow is essential to take on this product.

If you need cash fast and are confident you can pay back the debt in 30 days, charge cards might be the most practical financing solution for you.

2. 0% Introductory APR

If you’re like most people and constantly get credit card offers, chances are you’ve received a couple that have offered you 0% APR on purchases (and maybe even balance transfers) for a set period of time. Two of the very best 0% intro APR cards on the market are the Chase Ink Business Cash and the American Express Blue Business Plus, which can offer your business either 12 months of no-interest balances or 15 months of no-interest balances, respectively. Note that after your interest-free months are up, a variable APR sets in at a rate depending on your creditworthiness. This rate will also vary with the market, so be sure to see the issuer’s terms and conditions for the latest APR information.

Beyond their 0% intro APR periods, though, the Ink Cash and the Blue Business Plus vary significantly, so let’s take a look at the details on what they have to offer:

The Chase Ink Business Cash

The Ink Cash is one of the very best cash back, 0% intro APR cards on the market. For no annual fee at all, you’ll be able to access the following cash back rewards rates through this card:

  • 5% cash back on the first $25,000 you spend annually on:
    • Office supplies
    • Cell phone service
    • Landline service
    • Internet
    • Cable TV service
  • 2% cash back on the first $25,000 you spend annually on purchases at:
    • Gas stations
    • Restaurants
  • An unlimited 1% cash back on every other dollar you spend

To sweeten the deal, Chase is offering a welcome bonus of $500 cash back once you spend $3,000 within the first three months from opening your Ink Cash account.

 The Blue Business Plus

If you’re looking for as much 0% intro APR as possible, then you’re looking for the Blue Business Plus. With 15 whole months of no-interest balances, this card offers the longest 0% intro APR period on the market. Plus, you’ll be able to access some pretty stellar sustained rewards, as well:

  • 2x rewards points for the first $50,000 you spend annually
  • 1x rewards points for every other dollar you spend

You’ll also be able to access all of these top-tier rewards for no annual fee at all, so it will be all earnings and savings, all the time with the Blue Business Plus.

These cards are great for financing your business, as they’ll help extend the time you’re allowed in order to pay down a balance. Let’s say you need to make an upfront purchase, but know that you’ll need closer to 5-6 months to pay it back. With these cards, you can make the purchase with the card, and use the 0% APR period to slowly pay it off.

But these intro periods will come with a few important caveats that you’ll need to note. First and foremost, the credit line will need to be large enough to cover the expense you want to pay off gradually. Also, you might forfeit your 0% intro APR period if you don’t make your minimum monthly payments on time every time. Additionally, you’ve got to make sure you pay the debt down before the APR kicks in.

Another hard part about this type of financing is self-control. Let’s say you took out that card with a very specific purchase in mind.  Perhaps you need a new oven for your pizzeria. But, knowing the card has 0% APR, you start to slowly add on other expenses, until you have a mound of debt you can’t pay back before the APR kicks in.

Finally, you might want to be cautious if you already have other business credit cards. If you plan on closing one of your current lines to make room for the new one, you could end up hurting your credit score. Not to mention, having multiple credit accounts can get confusing. Therefore, this is usually a good option for business owners who have none or only 1 business credit card. And, make sure to find a card that has great benefits even after the introductory period, so you can keep using it and keep building your business credit.

3. APR is Less than Your Loan Offer

When business owners are looking at medium or short-term loans, which can have double-digit APRs, they start to wonder if it makes more sense to use a credit card to finance their business. And, in some cases, the answer is yes. If the APR on your current credit card is less than what you’re offered from a lender, it could very well be a better option.

First of all, you need to make sure your limit allows for you to cover the cost of the financing, as well as other daily expenses you tend to use the card for. This might make it a non-option out the gate.

The other thing to think about is that credit cards can’t be used for everything. And this also applies to the two scenarios above. Perhaps you need cash or you need to buy a large piece of equipment, but the supplier doesn’t accept credit cards.

Lastly, credit card debt can be a lot easier to get wrapped up in than with automatic debits for a loan. It’s often too easy occasionally skip a payment here or there. If you’re not careful, you could end up building up more debt for yourself in the end.

Financing your business with a credit or charge card is absolutely an option. However, you need to know the best solutions out there for this very function. Be diligent, compare all your options, and make sure your choice is something your business can easily handle financially. You’ve got to be incredibly responsible when you use a credit card for financing, so make sure the choice is well-thought through.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Meredith Wood

Meredith Wood

Editor-in-Chief at Fundera
Meredith is Editor-in-Chief at Fundera. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
Meredith Wood

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