Borrowing money to build your small business can be a bet on your future success — but the form of credit you use might affect the outcome. The amount of interest you pay can have a real impact on your business’s cash flow and profitability.
Depending on your company’s financial situation, you may get approved for a business line of credit, a small business loan, or a credit card. All involve their own fees, annual percentage rates (APRs), and payment schedules, and each has its pros and cons.
For certain uses, a small business loan might be preferable to a business credit card — or vice versa. Here’s how to evaluate your options.
Key Points
• Business loans provide funding as a single lump sum deposited into your account, while credit cards offer revolving credit up to a given spending limit.
• Loan repayment should follow a fixed monthly schedule with equal payments that cover principal and interest; credit cards allow flexible payment for each billing cycle.
• Interest rates on business loans typically range between 7% and 8%, significantly lower than the average credit card APR of approximately 22%.
• Loans can involve multimillion-dollar amounts that may support major investments like real estate or equipment, by contrast with credit cards’ lower limits.
• Credit card applications should process within days for qualified applicants, while business loan approvals require extensive documentation and may take one week to three months for a decision to be made.
When a Business Loan May Make More Sense
If your company is planning, say, a large expansion or the purchase of industrial equipment, you’re likely to find that credit cards or business lines of credit won’t cover the estimated costs. Instead, such big-ticket purchases generally seem to call for small business loans.
When you get a small business loan, the lender provides you with a lump sum, charging interest at a fixed or variable APR and specifying a repayment schedule over a given term. Fixed-rate loans are to be repaid in identical installments over the term of the loan, a predictable expense that should allow you to plan with confidence. Variable-rate loans may have lower rates upfront, but they also have the potential to get more expensive if there’s an uptick in the underlying prime rate.
When a Business Credit Card May Be the Better Fit
No matter how carefully you run your business, unexpected situations will crop up now and then. You may have to deal with equipment glitches, cost overruns, sudden mishaps that require out-of-town travel or the services of a specialist, or something else that you hadn’t predicted.
This is when the flexibility and quick cash access provided by a small business credit card may serve you well. You should be able to handle moderate short-term expenses smoothly and promptly, without the delay of waiting for loan approval.
A business credit card’s APR is generally higher than that of a business loan, but with a card, you can usually avoid interest charges by paying the balance in full each month. Also, some business credit cards offer a 0% introductory rate for the first 12 months.
Recommended: Startup Business Loans
Key Differences: Business Loan vs Business Credit Card
Business loans and credit cards operate in different ways because they’re meant to address different financial needs. The amount of money you can access, the way the money is disbursed, and the terms and conditions of repayment are important points of comparison.
How You Receive Funds
After your business loan is approved, the lender typically sends the entire amount to your business checking account in a lump sum. By contrast, a credit card gives you revolving credit, allowing you to tap into the credit as desired until you hit the spending limit.
Repayment Structure
Borrowers repay a business loan over an agreed-upon period of time with a strict monthly schedule of equal payments divided between principal and interest. Paying down a credit card should be much more flexible; each month, you can pay the required minimum, the full balance, or some amount in between.
Interest Rates and Total Cost
Business loan rates, whether fixed or variable, are likely to be lower than the average business credit card APR. Typical rates on new term loans as of late 2025 tended to be between 7% and 8%, with the APR on credit cards that charge interest averaging roughly 22%.
Despite lower rates overall, the total cost of a business loan can still be substantial. Even moderate interest paid on a large principal amount can add up to a hefty sum over many years.
Rates on credit cards (and variable-rate loans) can rise if there’s a jump in the underlying benchmark rate, which is typically the prime rate. However, you do have some control over how much credit card interest you pay. You might use cards with introductory 0% APR periods, for example. And, if you pay card balances in full each month, you can usually avoid interest entirely.
Borrowing Limits
Business loans may offer significantly higher caps than credit cards because they’re designed to be used for major projects like purchasing real estate or equipment. Multimillion-dollar loans are common. Small business credit card limits rarely exceed $50,000, so cards are often better suited for operating expenses.
Also, the amount of principal you borrow via a business loan tends to reflect your business’s financial situation at the time of your application. Once finalized, that amount typically doesn’t change over the life of the loan. By contrast, a credit card’s spending limit can be raised or lowered as your business’s revenues and credit history change.
Speed and Application Requirements
In general, it’s much faster to get a business credit card than a business loan. Cards can be approved within days if the business owner has a high personal credit score. Card applications — especially online — rarely require extensive documentation.
A business loan application, however, does call for substantial paperwork that takes time to review. Processing speed depends on the lender and the type of loan. The wait can range from one week to three months. (If you’re considering applying for a Small Business Association loan, try out SoFi’s SBA loan calculator to get a cost estimate.)
Among the documents lenders generally want to see from a company are:
• A credit report
• Income statements
• Bank statements
• Budgets
• Business plans
• Several years’ tax returns for the business and the owner
Impact on Business Credit
Business loans and business credit cards can both help build a company’s credit score if the payments are reported to credit bureaus. However, for riskier enterprises like microbusinesses or startups, a business credit card often requires a personal guarantee. This means any missed payments by the business can directly affect your personal credit score.
Pros and Cons of Business Loans
Pros
• Lenders pay the entire approved amount in a lump sum.
• Fixed-rate loans have predictable payments, making for greater stability.
• Business loans tend to be much larger because they are designed for major projects.
• Fixed-rate loans can be a convenient way to consolidate existing debt.
Cons
• The application process requires extensive paperwork.
• Funding the loan can take from one week to three months, depending on the lender and the type of loan.
• The principal is finalized at approval and typically, there’s no way to raise the credit limit.
• You pay interest on the full principal amount from day one.
Pros and Cons of Business Credit Cards
Pros
• Business credit cards provide quick access to funds.
• Payment amounts are flexible, and it’s possible to avoid interest charges by paying the balance in full each month.
• The spending limit may be raised if your business’s financial situation improves.
• Getting a card is much faster than getting a loan.
• Using the card sensibly can help your business build a solid credit history.
• Some credit cards offer rewards, including cash back and travel points.
Cons
• A credit card’s APR is generally higher than that of a business loan.
• Spending limits tend not to exceed $50,000.
• A personal guarantee may be required, meaning missed payments can ding your personal credit score.
• Using a credit card to purchase a large asset is often not recommended, given the comparatively high APR.
Recommended: Equipment Financing
How to Choose: Business Loan or Credit Card
When deciding between a business loan and a business credit card, your smartest choice depends on how much money you need, what you plan to use it for, and how large a monthly payment your cash flow can sustain.
If you’re borrowing for something big, you’re likely to do best with a business loan. Expenditures on the order of a plant overhaul, business expansion, or purchase of industrial equipment could be well-suited to loans. The loan’s fixed dollar amount and predictable installment schedule make for a consistent expense that’s steady enough to plan around. (It may be helpful to use SoFi’s business loan calculator ahead of time to find a payment amount your business can handle.)
You should expect a fairly rigorous loan application process that could take weeks or months to complete. If it turns out that the loan amount isn’t sufficient for your needs, your business may have to submit another application to get additional funds.
By contrast, a business credit card might be the way to go if you need moderate, flexible funding over the short term. Examples might include paying for operating expenses or covering unexpected situations. The card’s APR is likely to be higher than that of a small business loan, but your repayment options are more flexible. Keep in mind that limits rarely exceed $50,000, but can be raised. For riskier enterprises, such as startups, a personal guarantee may be required.
As a rule of thumb, short-term financing tools (i.e., credit cards) aren’t the best way to finance costly, long-term investments.
The Takeaway
Business loans may provide a lump sum with interest accruing immediately. They are considered well-suited for large, long-term investments like expansion or equipment purchases. By contrast, credit cards provide revolving funds, and interest is charged only on the amount used. Also, loans have a fixed repayment schedule, while cards have more flexible payments and, if paid in full each month, may help you avoid interest altogether.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
Is it better to get a business loan or a business credit card?
That depends. The best form of credit for you will depend on how much money you need, what you plan to use it for, and how large a payment your cash flow can sustain each month. For big, multiyear projects, a business loan (at a comparatively low interest rate) is likely to be better for you. If you foresee needing smaller sums for operating expenses, a credit card gives you more flexibility, including the possibility of paying no interest by paying off the balance in full each month.
What is the biggest difference between a business loan vs credit card?
A business loan and a credit card differ in several important ways, but one of the biggest contrasts has to do with when you access — and pay for — the purchasing power. With a business loan, the principal is delivered all at once, meaning you pay interest charges on the full amount from day one. Credit card funds are also available right away, but you do not pay interest until you use the money; once you do, you pay interest only on the amount you spend.
Do business credit cards have lower interest rates than business loans?
Business credit cards usually have higher interest rates than business loans. In fact, for many business loans, owners find they can lower their interest rate even more by offering collateral.
Can I use a business credit card to build business credit?
Yes. If you want to build or repair your business’s credit, sensible use of a credit card can help. Most small business credit cards report their activity to one or more business credit bureaus. Making all your payments on time and keeping your credit usage low demonstrates financial responsibility. If all goes well, you can likely build business credit in a matter of months.
When should I avoid using a business credit card for business expenses?
Avoid using your card to purchase a large asset for your company, such as a truck or a piece of heavy machinery. Even if the purchase amount doesn’t exceed your credit limit, the card’s comparatively high APR could end up tacking a big premium onto the price.
Photo credit: iStock/Miljan Živković
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOSMB-Q425-100