Corporate cards

Business credit card vs. business loan: which one to choose?

Apr 05, 2024

For business owners, business loans and credit cards are the most common forms of financing.

A business credit card vs. business loan to meet your funding needs relies upon a few variables, including how you anticipate utilizing the returns, the strength of your business funds, and your credit score.

If you've been looking for business financing, you probably feel like there are too many options.

For business owners who want to fund their own businesses, credit cards and business loans are two of the most readily available and widely accessible forms of financing. These are your best bets if you want to avoid investors from outside sources.

What are business credit cards?

Unlike individual credit cards that are for individuals, business credit cards are intended for use by organizations. For entrepreneurs specifically, having a business credit card can be an effective method for keeping their business and individual costs separate for accounting and expense purposes.

Business credit cards frequently accompany exceptional advantages; however, they come up short on the purchaser securities that are expected of credit cards for people. These cards are presented by an extensive variety of lending organizations. 

The application process for business credit card is similar to that of applying for a credit card. Business borrowers can apply regardless of an employer identification number (EIN), which makes it more straightforward for independent ventures to get a card. Since the application process for business credit cards is typically automated and results in an immediate credit decision, they are generally simpler to obtain than non-revolving business loans.

Also, are you interested in finding the best business credit cards in Australia? Explore our comprehensive article to discover top recommendations and valuable insights. 

What are business loans?

Businesses require a sufficient amount of cash to cover startup expenses or pay for expansion expenses. Consequently, businesses seek financing through business loans.

A business credit is an amount of cash that the organization should take care of as per the terms and conditions of the credit. Before applying for a loan, business owners must be aware of their options for startup financing, how loans work, and what a lender wants to see from an owner.

A business loan is a financial tool that can be used to pay for both anticipated and unanticipated costs. Business credit is acquired cash that organizations use to take care of costs they can't bear the cost of on their own temporarily. Loans are not made available for free. Lenders charge interest on loans as the cost of borrowing the money.

It is essential to know whether the interest is fixed or variable. A rate of interest that remains constant throughout the loan's repayment period is known as a fixed interest rate.

Read our article on collateral free business loan to know in detail the factors to consider when applying for a business loan and also some of the best collateral free business loans options in Australia.

Pros of business credit cards

Following are the benefits of business credit cards

1. Convenience

Having a business credit card in your wallet is much simpler than relying on large sums of cash or your checkbook when making a purchase. When making purchases online, a credit card offers convenience.

The trend is moving towards a cashless economy. Goods & services can be paid for using a credit card with convenience.

2. Purchase insurance

With most credit cards, you can debate any inappropriate charges on the account and try not to make installments until the dispute is settled.

In the event that the items you purchase are misplaced, stolen, or not delivered, many credit cards provide some form of purchase protection to cardholders.

3. Reduced issues with cash flow

Many new business owners begin with limited resources. A business card can empower you to make imperative buys regardless of whether you are briefly short on reserves.

Your company will be less susceptible to short-term ups and downs because of this, which could normalize your cash flow.

4. Much simpler than obtaining a loan

Frequently, the application process for a business credit card is quicker and less complicated than that for a traditional small business loan.

Banks and other loan providers often require some collateral, but it is not an issue with a business credit card. You need not provide collateral while applying for a business loan.

5. Arrangement of costs

Hotels, office supplies, meals, and other expenses are frequently broken down by category on numerous credit cards, which can make it easier to file taxes and accounting records. It can likewise be valuable when you have to audit for tax purposes.

Curious to know the advantages of business credit cards in detail? Explore our insightful article to uncover the numerous benefits that come with using business credit cards.

Cons of business credit cards

The following are the drawbacks of having business credit cards.

1. Impact on individual's credit score

The issuer of a business credit card will typically consider your personal credit score when deciding whether to approve your application. Your personal credit score may temporarily drop by a few points if they do a hard credit inquiry.

However, most issuers do not report business credit card activity to consumer credit bureaus, unless it is negative, once the card is approved.

2. Accumulation of debt

If you aren't careful with your money, getting a business credit card becomes senseless. Even though using credit to buy things might be tempting, accumulating debt that you have trouble repaying can cause problems with your finances in the long run.

3. Charges on interest

If businesses fail to clear their monthly balances, they will have to pay interest, which can be especially high on credit cards.

4. Need to provide details about the business

When you apply for a business credit card, you must also provide information about your company and your personal details.

This commonly includes the name of the business, its location and telephone number, the business it has a place with, its legitimate design, its EIN or your SSN, and its yearly income.

5. Need great reliability

It's not hard to find a consumer credit card for people with average or poor credit; however, this is not the case with business credit cards. To be eligible, you must have good or excellent credit with most issuers.

However, there are a few secured business credit cards available that can assist you in raising or maintaining your company's credit score.

One stop solution to manage and streamline your business expenses

Pros of business loans

The pros of applying for business loans are as follows.

1. Simple and quick

Getting a business credit is basically as simple as reaching out to a bank and discussing the chance of getting funding. Obtaining a business loan is much simpler and more convenient than searching for investors and engaging in lengthy discussions.

2. No need for collateral

As long as you meet the eligibility requirements, most business loans do not require collateral. Small businesses with few assets may find business loans particularly appealing because they are unsecured.

3. Support for working capital

If you are experiencing a liquidity crunch, the money from the business loan can be used to increase your working capital. You can run day-to-day activities and cover momentary costs without plunging into the rainy day account.

4. Different credit choices

Most banks will have different sorts of business credit plans to meet the various necessities of organizations. They might provide loans for businesses, such as term loans, or for machinery.

5. Tax advantages

A business loan's interest is frequently tax-deductible. Before applying for a business loan, verify eligibility and the interest limit.

Are you a startup in seeking funding to scale your business? Dive into our comprehensive guide on how to get a startup loan in Australia to explore valuable insights and step-by-step strategies to secure the financial support your startup needs.

Cons of business loans

The following are the disadvantages of applying for business loans.

1. Not all organizations are qualified

When it comes to approving or rejecting an application for a business loan, banks have established numerous stringent guidelines. The banks' requirements won't be applicable to all businesses. Before approving the loan, they prefer operational businesses because they can check their productivity, profitability, and credit history.

2. Loans that are backed by collateral

The majority of loans are secured by the company's real estate holdings. Banks may require that the business visionary set up security to procure the credit. When the owners of the business are unable to meet the repayment obligations on time, and the company is not making the profits that were anticipated, the situation becomes problematic.

3. Dreary application process

It takes a long time to apply for a business loan. When compared to applying for personal loans, business loan applications are significantly more complicated.

Every document that an entrepreneur attaches to the application is checked and verified by the bank, which then determines whether or not the company is qualified for a loan.

4. Rates of high interest

The financing costs for business credits from banks can be extremely high, and how much the bank advance that a business is qualified for isn't satisfactory to resolve the business' concerns.

The exorbitant financing cost for the credit a business gets can stunt the business' turn of events and development, as the need might arise to acquire benefit from the credit and deal with the additional expense of the exorbitant loan fee.

5. Timely repayment plan

Banks underwrite a very severe reimbursement timetable to the borrower, which should be followed immovably.

The debtor's credit score and credibility may suffer as a result of their inability to comply. The majority of the time, the debtor faces difficulties as a result of the repayment schedule's rigidity.

Are you looking for a business credit card? Then, check out our article on how to apply for business credit card in Australia and get your cards soon to manage your business expenses.

Business credit cards vs. business loans: which one to choose?

You can choose between business credit cards and business loans by considering the following points.

1. Sum borrowed

Business loan

You can typically borrow more money with a loan, but once the agreed-upon amount has been borrowed, you can only access that amount unless you take out a separate loan.

Credit card

Compared to a business loan, business credit cards typically have lower monthly credit limits, but they are more adaptable, have the ability to increase credit limits over time, and provide ongoing access to funds.

2. Period of repayment

Business loan

You may be required to pay the same amount each month over the course of the loan, including interest, depending on the amount borrowed and the agreed-upon repayment schedule. As a result, you will no longer have the option to pay off the loan debt early. 

Credit card

Flexible repayment terms exist. However long you make the base month-to-month reimbursement, you're allowed to pay a sum that suits your spending plan every month. This can be an extraordinary choice in the event that you're hoping to take care of obligations quicker, assuming your income develops.

3. Annual percentage rate

Business loan

Regardless of whether you use the loan or not, interest accrues immediately and is calculated based on the total principal amount borrowed. Loan costs are ordinarily lower than interest on a business credit card.

Credit card

You only pay interest when you use your credit, which is usually expressed as an annual percentage rate and charged on a monthly basis. Typically, credit card interest rates are higher than loan interest rates.

4. Requirements

Business loan

Qualification necessities will change contingent upon the bank and kind of credit you require, yet by and large, your business should be laid out and running at a benefit. In addition, you'll need good business credit.

Credit card

Typically, getting a credit card is easier to qualify for than getting a loan. A good credit history will be important, but the company that conducts "soft inquiries" during the application process that do not affect your credit score is an option.

5. Fees and additional expenses

Business loan

When it comes to business loans, there are numerous fees. Application fees, processing fees, origination fees, overdraft fees, late payment fees, and prepayment fees are all typical costs associated with business loans.

Credit card

There may be annual fees, transaction fees, interest charges for overdrafts, and late payment fees associated with business credit cards. There may also be additional costs, such as fees for additional employee cards or foreign transaction fees.

A loan might be a good option if your company is well-established, has a good credit history, and makes a lot of money. You also want to get money for a specific thing, like opening a new location or buying expensive equipment. You will be able to borrow more money, but you will likely have to meet more stringent borrowing requirements and have less flexibility. A business credit card may be a better choice for small and medium-sized businesses seeking a continuous line of credit to support business expansion and day-to-day cash flow requirements. You will have more flexibility and other benefits than you would with a business loan. 

Volopay business credit line to meet your business needs

Business needs, whether daily or huge one-time investments, none should be a reason for stress.

Hence, we bring you the easy and flexible business credit line offered by Volopay. Reap the amazing benefits of quicks credit checks, speedy expense approval, customizable repayment cycles, minimal documentation requirements, and smart corporate cards for spending.

Volopay is the best software allowing its customers to centralize all the financial management functions and integrate with an amazing business credit line.

With a global Volopay business account, customers can make international and domestic payments using the corporate cards connected to the credit line. There is a plethora of things to explore with Volopay.

Grow your business exponentially with Volopay's business credit


Do business credit cards help build business credit?

 Establishing business credit is made easier by opening a business credit card that reports to the major commercial credit reporting agencies.

Is it good to use credit cards for business?

Credit cards can be a helpful device if they're utilized properly. Business cards frequently will offer preferred rates over personal cards, yet premium charges for neglected balances can, in any case, be high.

Can you get a business loan with no deposit?

Loans without a deposit are available; however, you will need to demonstrate to your lender why you will not be contributing any additional funds.

Is it difficult to get a business loan?

A number of factors determine a business loan approval. Businesses with strong revenues, good credit, and at least a few years of operation typically qualify for business loans. 

How much can I borrow for a business loan?

The loan amounts that are available to eligible applicants start at Rs. 50,000 up to Rs. 100 billion.