Here we talk about the pros and cons of business credit cards and how they compare to a business line of credit. It is my belief that a small business would be better served if they activated a line of credit to supplement their business credit card usage. A business credit card and a line of credit are both useful tools for a small business to help ease cash flow crunches and extend payment terms to vendors.
Why Do Banks Advertise Credit Cards, Not Lines of Credit?
Banks make more money with credit cards than they do with a line of credit. Yes, credit card companies offer perks such as ‘cash back’ and introductory low rates, but the average American business owner is paying 17% Annual Interest Rate for a business credit card. This is 17% per year, but if you don’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%. This is obviously a much better cost basis.