April 5, 2018

Credit Card, Loan, or Line of Credit: Which is Right for Your Business?

It’s not hard to get confused by the range of credit choices that are available to help support your business. Especially since credit cards, loans, and lines of credit can all serve as sources of ready cash or working capital.

But it’s not so much a matter of figuring out which funding vehicle is right for your business, as it is which is the best option for the expenditures at hand. Charge cards, long-term loans, and credit lines all come with benefits. So let’s take a look at what makes them useful, and how they can strengthen your business strategy.

Business Credit Cards

Applying for and using a company credit card is a convenient way to establish credit (if you’re a newer business), and to access purchasing power and emergency funds. But charge cards offer your wellness business much more:

many come with built-in cost-cutting features like cash-back perks and travel rewards,
the real-time transaction records and online statements they provide can streamline your bookkeeping tasks, and
buying supplies with a credit card can tide new companies over until enough history has been established with vendors to get charge accounts approved

Just make sure that your company charge card is reserved for commercial expenses only. When it comes to credit, business and personal don’t mix.

Small Business Loans

A small business loan is something you’ll typically want to reserve for bigger projects, like those involving the growth or expansion of your company. The most important thing to understand about loans is that they’re generally designed to serve a one-time purpose, such as:

purchasing or upgrading company equipment,
investing in large amounts of inventory,
buying real estate, or
remodeling or renovating business premises

Loans are an effective way to introduce large, lump sums of capital into your business, but they’re not the most flexible of credit options. Many loans come with a fixed rate of interest – and most represent a long-term debt commitment that takes the form of monthly instalments.

Business Line of Credit (LOC)

A credit line is often viewed as the most practical and accommodating source of short-term financing for the healthcare industry. Unlike a loan, you can borrow cash from an LOC as often as you want – and in whatever amounts you need (up to your approved limit) – and pay interest only on the money you draw down. Plus, every time you repay borrowed funds, they become available to borrow again.

You should be aware, however, that some LOCs come with strings attached in terms of how the money you draw down can be used. Still others may require that your business repay outstanding amounts in full at pre-determined intervals. But LOCs often boast higher borrowing limits than the average business credit card, along with variable interest rates. And they can provide effective stop-gap financing for things like payroll coverage that loans and credit cards cannot.