Business Line of Credit vs Business Credit Card: Which Is Better?

How Does a Business Credit Card Work?

Like a personal card, with one valuable feature: the grace period. Chase's terms for its Ink business cards say the due date is "a minimum of 20 days after the close of each billing cycle," and no interest is charged on new purchases if the balance is paid in full by then. Pay in full every month and the card is free credit.

Carry a balance and it gets expensive. The APRs "will vary with the market based on the Prime Rate," and a default rate can apply indefinitely to the whole balance.

How Does a Business Line of Credit Work?

You draw cash when you need it, and repay on a schedule. American Express says its line of credit funds "are sent to the verified business bank account you designate," and Bluevine collects repayments by automatic debit, weekly or monthly. That makes a line the tool for expenses a card cannot pay: payroll, rent, a supplier who wants a wire. The details are in how does a business line of credit work.

Do Credit Card Protections Apply to Business Cards?

Mostly no. In its 2010 report to Congress, the Federal Reserve wrote that "TILA's disclosure requirements for credit cards generally do not apply to business credit card accounts," and that few business card issuers had chosen to follow the CARD Act's restrictions voluntarily. The CFPB's Regulation Z exempts credit "primarily for a business, commercial or agricultural purpose."

Two protections remain: Regulation Z's rules on issuing credit cards and on liability for unauthorized use "apply to all credit cards," business cards included. Everything else is set by the card agreement, so read it.

Which Costs Less?

A card paid in full each month costs nothing. Past that, it depends on the line. A bank line can be priced near Prime: Wells Fargo's BusinessLine starts at Prime + 1.75%. Online lines cost far more: OnDeck publishes an average line of credit APR of 59.8%. A card carrying a balance sits in between. Compare the APR and the fees, not the monthly payment.

Do Both Need a Personal Guarantee?

Usually. Chase's business card terms say the cardholder agrees "to be personally responsible, both individually and jointly with the Company, for payment of all balances," and Chase requires a personal guarantee from any 20% owner on its line of credit. Either way, the owner's personal credit is on the line.

When Should a Business Use Each One?

For a larger or faster need, Batch Capital funds working capital advances with its own capital and places term loans, SBA loans and equipment financing with its lending partners. The application takes 5 to 10 minutes, with no hard credit pull.

• Card: supplies, software, travel and anything you can pay off before the due date.
• Line of credit: payroll, rent, inventory and seasonal gaps, paid back as the cash comes in.
• Neither, yet: if the business does not meet line of credit requirements, see what lenders require.