When weighing choices (especially those that involve money), you want to know all the facts to make your decision-making easier. Because no two businesses are exactly alike, business owners have different financial needs and financing options. Two alternative sources of lending are short term business loans and business credit cards.
Each financial product has advantages and disadvantages.
They do have one thing in common. Both give you access to funds quickly when a business opportunity arises that you simply can't turn down.
Plus, applying for a short term business loan or a business credit card isn't a complicated process.
You'll have access to funds in days, not weeks.
Compare the two sources of funding below to decide which one is right for you.
Short Term Business Loans: Quick Cash for Timely Opportunities
- Depending on factors like your credit history, how long you've been in business, and your annual revenue, you can choose from a wide range of interest rates and repayment terms. You’ll know before you commit to a loan, your exact monthly repayment amount and the term.
- It's possible to apply online without visiting a local bank. Another appealing convenience is being able to fax or mail copies of financial records to the lender from your home or office.
- Short term business loans are beneficial when you can repay the loan within a fixed amount of time without causing undue stress on your finances.
- Because lenders of short term business loans offer quick turnarounds, you can get a lump sum of cash quickly. You won't miss out on an exclusive opportunity that isn't likely to happen again. Examples include a company going out of business and selling its equipment or a supplier offering bulk inventory at a greatly reduced price.Business Credit Cards: You’ll Have Cash Whenever You Need It
- Business credit cards are similar to a business line of credit. You withdraw money only when you need it and repay it each month.
- This flexible financing option means the money is available when you want it.
- Business credit cards are helpful when you need emergency cash. Keep in mind that you shouldn't use them regularly since a longer-term financing option costs less. They're okay to make larger purchases if you know you'll have the cash in a few weeks to pay off the card. Otherwise, in that situation, short term business loans are a better choice.
- When compared to short term business loans, the interest rate is normally significantly higher.
- Most business owners aren't aware that if your business credit card balance exceeds 30% of your credit limit, your credit score could be adversely affected.
- Sometimes business credit card interest rates are linked to the prime rate. If the prime rate increases, the card's interest rate also goes up.
- Business credit cards may incur annual, cash advance, late payment, and over-limit fees.
Short Term Business Loans and Business Credit Cards— Viable Financing Options
A business owner's goal when facing a cash crunch is to increase cash flow as quickly as possible. As you can see, short term business loans and business credit cards each have specific requirements, benefits, and differences.
Do you want to repay borrowed money over a period of years or are you comfortable paying off a credit card each month?
What you don't want to do is put yourself in a position where paying off a loan or a credit card eats up your profit. You may even decide to get both a short term business loan as well as a business credit card. It's your choice.
So does one financing option stand out as a better fit for your business than the other one?
Which one better suits your business needs?
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.