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Working Capital: Line of Credit or Credit Card?

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You’re just starting a new business and you need cash to help things get off the ground. Or you’re existing business is growing and you need money in order to keep up with the demands of expanding. Each scenario is unique. But, they do have something in common – they both need working capital to take things to the next level.


Unless you’re lucky enough to have all the working capital you need tucked away in a bank account – or a great relationship with your millionaire uncle – you’ll need to search an outside source who offers the product that best fits your needs. Two go-to options are a business line of credit or a credit card.


Let’s take a brief look at these two ubiquitous options, briefly define each and talk about their pros and cons.

Business Line of Credit

A business line of credit is a specified amount of money that can be accessed as needed. Terms can include either an immediate repayment agreement based on daily cash flow or payments over a predetermined time period.


Pros for a business line of credit typically include interest rates that are lower than a credit card and that your payments are based on only the amount of money you’ve drawn out, not the total amount approved like with a standard loan. The primary con is that some lines of credit are classified as a demand loan, meaning that the bank can request full payment at any time.

Business Credit Card

A credit card gives a business owner easy access to working capital. Like a personal credit card, they come with a set spending limit and can be used to make purchases or withdraw money.


Pros include that business credit cards are typically easier to qualify for than a standard bank loan and that you can continue borrowing, up to your credit limit, as long as your payment history remains solid. A good credit history can also pay off later in the form of larger loans and even lower interest rates. The number one con is that most business credit cards require a personal-liability statement.

Working Capital Wrap Up

As with any form of a loan, be sure to do your homework. Approach a variety of different types of lenders, from traditional banks and credit unions to non-traditional lenders like online funding brokers. Interview them and be crystal clear on terms, conditions and all of the pros and cons. Once you’ve done that, move forward with the working capital solution that best fits your needs.