With the financing, you are not obliged to use up the full amount granted to you. Instead, you can draw the amount you need and pay it back later with interest. It’s also a revolving credit, so you can access the credit line repeatedly, provided that you don’t go over the set credit limit.

Once your application is approved, the lenders will open a credit line with a credit limit between $5,000 to $1 million. The exact amount will depend on your qualifications, specifically your business credit score, annual revenue, and business history. Essentially, businesses with stellar credit history and financials have high chances of credit approval.

As the name implies, secured business lines of credit are financing that requires collateral or an asset that will serve as security for the loan. It could be real estate, equipment, or other valuable assets the company holds. Regardless of the purchase, the collateral adds a layer of protection for the lenders.

With collateral, lenders will have something to repay if the borrower defaults on the loan. This gives them enough confidence to offer excellent terms and high credit limits to borrowers.

Unsecured business lines of credit or small business lines of credit do not have the collateral requirement. That being said, the lenders have nothing to tie up the loan to. Nothing to seize in case the business cannot fulfill the monthly payments. This adds significant risk to the lender’s side. Lenders are more likely to charge a higher interest rate for the financing and may require the borrowers to sign a personal guarantee agreement to mitigate the risks.

A business credit card can come in handy in many instances. For instance, you can use the card for expenses like company food purchases, travel expenses, purchasing inventory, or paying the utility. Business credit cards also have a higher credit limit than personal credit cards. Plus, many credit card providers don’t report business activities to personal credit, making it an ideal solution for businesses who want to separate business and personal expenses and those who want to protect their personal credit.

But it’s worth noting that you can only use credit cards for vendors that accept credit card payments. If the vendor doesn’t accept credit cards, you may have to resort to cash payments. This is where a business line of credit can come in handy. You can use the cash from your credit line for expenses like rent, payroll, and other invoices. Plus, business lines of credit can also have higher credit limits than credit cards.

So, how do you know which financial resource to get for your business?

Having both financial resources can be helpful for your business. In general, use a business credit card under the following circumstances:

• You don’t need a significant amount of cash for a specific business expense
• You want to take advantage of detailed expense tracking
• Paying for travel expenses like plane tickets, meals, accommodation, etc.
• You want to earn rewards like points or cashback

Choose a business line of credit if:

• Your business needs to fund a short to mid-term investment like expensive equipment
• You want more flexibility
• You need a financing resource with higher credit limits

Business lines of credit are a great financial resource because it gives your company a chance to cover certain expenses without draining your cash reserves. However, like other investments, it comes with certain disadvantages and risks.

Below, we’ll outline the pros and cons of business lines of credit: