Should my small business use a business credit card or a line of credit?

If you own a small business, you’re sometimes facing down big bills or unplanned costs. Having both a business credit card and a business line of credit gives you flexibility so you can choose which to use based on what you need and the particulars of each purchase. Arshia Gupta, Small Business Card executive at Bank of America, says having both is key to success.

That may seem unnecessary if you view the two as interchangeable, but there are distinct benefits to having access to both. But whether it makes more sense to use a business credit card or a credit line depends on your specific situation. Here’s what you need to know about each type of financing to make the best decision.

Using a Business Credit Card

There are a number of situations where using a business credit card is the more advantageous choice.

A business credit card can be beneficial if you have regular, recurring business expenses you want in one place. This is especially true if you intend to use your credit card on necessary expenses such as office supplies and travel, which are both commonly tracked on credit cards. In addition, many common accounting programs allow you to import transactions directly from your credit card so you can easily keep up with business spending, and having all your purchases recorded makes claiming tax deductions simpler.

Need another reason to keep that business credit card around and use it responsibly? Small business credit cards can help build your business credit, says Gupta. That’s useful should you eventually choose to apply for a line of credit. Small business cards also tend to offer cash rewards or business rewards, which you can use to lower costs or reinvest in your business. And, a credit card generally won’t require collateral for approval, while a secured line of credit may.

Tapping into Your Business Line of Credit

There are times when tapping into your business line of credit is smarter. Once you’ve tapped out your business credit card limit, a line of credit will often provide you with more available credit than a card.

Some things simply cannot be paid for using a credit card. A common reason to use a business line of credit rather than a credit card is to draw from your available credit to make payroll or to buy inventory. A business line of credit, ideally, is used in slower months.

Specialists say business lines of credit are useful when you don’t know exactly how much money you’re going to need. Lines of credit are often for much larger sums than cards, often more than $250,000, which can come in handy when you’re considering larger projects, expanding or anything with unclear timing, says Roderick Wilson, a Small Business Lending executive at Bank of America. You can draw funds with an account card, by business checking or mobile banking app.

Planning ahead is key when it comes to applying for a business line of credit. Since lines of credit take longer to get approved than business credit cards, you’ll want to consider carefully how long it will be until you need the funds you’re applying for. Wilson suggests allowing one to two weeks if the lender gets everything needed upfront. Lenders typically require that businesses have at least two years in business, under the current owners, plus financial statements. Also, lines of credit above $250,000 may need a blanket lien on business assets or a CD.

Accrue Interest

Both a business credit card and a business line of credit accrue interest from the time funds are drawn on the account. Make sure you pay down both your credit card and line of credit balance. By doing so, you’ll be able to borrow that money again as your business grows.

A business line of credit tends to have a lower interest rate than a business credit card; thus the line of credit is often cheaper. Though the rates can vary widely and it depends on which products you’re considering, cards can top 20 percent APR on purchases and cash advances can be even higher. But, a line often has an annual fee, while a card may not.

Each of these financial products can be a useful tool for your business, so learn how to best use them separately and together. Talk to a financial advisor or banker about finding the best options for your business’s specific situation. He or she can point out what’s different about lines of credit versus business credit cards and help you determine which credit offering is best to take on at any time.