Business Credit Cards and Business Credit Lines — Is There a Diferrence?
Both business credit cards and business credit lines are credit facilities given to businesses by a financial institution, usually banks. Entrepreneurs commonly try to acquire any of the two or both facilities to aid them with the short-term financial need of their small businesses. These credit facilities can provide the businessman with the much needed funds to help him with his business, provide liquidity, complete projects or for just about anything that could help him through the cash flow shortage. When extended by the banks, both give a pre-set credit limit to the borrowers which serves as their revolving fund. Interest rates are charged on both credit facilities only on the outstanding balances. Additionally, both are extended without the need for a collateral or a security as long as the borrower has a passing credit rating.
In others words, these two are very much alike. So where does the difference lie?
Firstly, the two differ in form. A business line of credit may be in the form of cash credit, term loan, overdraft, loan on demand, commercial bills, export packing credit, etc. A typical business credit card, as most people would know, is in the form of a thin and tiny rectangular plastic card. At its back is a magnetic plastic strip that contains all the information about the cardholder and his account. I say “typical” because in these modern types, even the physical attributes of credit cards have morphed into state-of-the-art forms, i.e., cards with chips or microprocessors instead of the magnetic stripe. There are also the “contactless” form of cards that instead of swiping, the cards are tapped on the readers or sensors. Another one is the “biometric” card which relies on the cardholder’s physical and biological features to get an approval, e.g., iris and fingerprints.
The second difference would be on how these two are used. A business credit card can prove to be more convenient to use because all the businessman needs to do is carry the card and make the purchases anytime and almost anywhere. No need to carry cash, which is a safer way of shopping. On the other hand, a business credit line requires the borrower to first notify the bank of the amount needed before it can be transferred to his account or in whatever form he requires.
Other differences that should be taken into consideration are the credit limits and interest rates. Business credit cards usually employ a credit limit that could go as high as _50,000 or even more depending on the credit rating check. However, business credit lines usually extends bigger credit limits than the business credit cards. In some cases where the borrower offers pricey collateral, bigger limit may be set, reaching up to millions of pounds. In terms of interest rates, credit lines apply lower rates than business credit cards. The latter charges an annual percentage rate (APR) that ranges from 15.9% to 23.4% depending on the issuing bank. Business lines of credit however can charge as low as 5.79% APR.
There are still some other minimal differences between the two. Business credit cards provide quarterly and annual statements of account that makes credit management easier and more systematic for the cardholder, which the credit line does not do. Lastly, countless business credit cards offer additional perks and rewards to the borrower whenever they use their credit cards for purchases. These rewards may be insignificant if what is used is a personal credit card. However, business credit cards are usually used for big time spending and thereby accumulates more points. These points can be used to exchange with rewards or even cash rebates depending on what the card offers. It would be wiser for the businessman to acquired business credit cards that offer rewards that are complimentary or useful to their line of business. For instance, if a business requires some employees to travel now and again, then it would be advisable to get a card that offers free air miles or airline tickets. On the other hand, a business credit line does not offer these types of added promotional schemes.
In the end, given these information, the decision on which type of credit facility to use still lies on the borrowing businessman. It is just important to remember to be responsible and diligent on payments, to avoid the risk of losing your business.
Tags: business cards, Business Credit Cards
