What is the main difference between a line of credit and a credit card?

A line of credit offers a pool of funds that can be drawn upon for larger, short-term financial needs with flexible repayment options. A credit card is designed for everyday expenses, offering convenience and rewards but often with higher interest rates if balances aren’t paid in full.

Which option is better for managing irregular cash flow?

A line of credit is better for managing irregular cash flow, such as covering payroll or seasonal expenses, due to its typically larger limits and lower interest rates. Credit cards are less suitable for such purposes because of their smaller limits and higher interest.

Can a business have both a line of credit and a credit card?

Yes, a business can benefit from having both. A line of credit provides backup for larger cash flow needs, while a credit card is useful for day-to-day transactions and earning rewards on purchases.

What are the risks of using a business line of credit?

A business line of credit may involve a number of unforeseen fees or penalties, even if you make payments on time. The lender may charge you a fee for each withdrawal or wire transfer. Some may impose payment processing fees or early repayment penalties. Worse yet, the ease of borrowing with a line of credit could lead to a cycle of debt if not managed carefully.

How does applying for a line of credit affect your business credit score?

If your business applies for a line of credit, the creditor will generally access your credit file in what’s known as a hard inquiry or a hard credit check. Regardless of your existing credit score, it will generally go down after a hard inquiry, no matter the outcome. FICO estimates that one inquiry can reduce your score by five points or less. The effect typically subsides after 12 months. Bear in mind, too, that each business credit bureau (Equifax, Experian, and Dun & Bradstreet) has its own criteria for scoring, so results may differ by bureau.

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✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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