Why Do Banks Advertise Credit Cards, Not Lines of Credit?
In short, banks make more money with credit cards than they do with a line of credit. Usually, credit card companies offer perks such as ‘cash back’ and introductory low rates, but the average American business owner is paying a 17% Annual Interest Rate for a business credit card. That’s 17% per year, but if your business doesn't pay off balances from purchases within a year, and allow them to carry over, this ‘cost’ increases exponentially.
Now, with a line of credit, the annual interest rate that we see for American small businesses is anywhere from 8% to 4.5%. Which is a significantly better cost basis.
Lines of Credit Offer Better Purchase Power
We need to remember that a line of credit is actual cash. With this cash, you can pay them for anything that is associated with your business. So when you draw from the line of credit, your account receives this cash.
On top of this, you most likely can't use a credit card to pay payroll or rental payments. If you wanted a cash advance from your credit card, these rates are anywhere from 2 to 3 times higher than the Annual Interest Rate, with added fees.
Where can you get the largest amount of money from?
When we talk to small businesses we see that they have multiple credit cards for their business, but these credit limits may be low - (this may be the reason they have multiple). Based on 2020 data from Experian, the consumer’s credit limit was $31,015, while the average small business credit card limit was $56,100.
The average line of credit facility that we activate for our customers is around 2 to 3 times higher than their business credit card limit.
Credit cards are a good option for businesses, specifically when you want to stay on top of payments and use the card responsibly.
Now when you weigh out all of your options a line of credit is the best of both worlds, it offers you the ease of payment and a cumulative higher credit limit.
To see the requirements for a line of credit in your State, visit our online tool here.