Short answer: Use a line of credit (LOC) for short‑term working‑capital gaps you’ll repay soon (usually lower rates, bigger limits). Use a business credit card for small, day‑to‑day buys you’ll pay off monthly (convenient, rewards, typically higher rates). If a balance will carry, a LOC is usually cheaper than revolving on a card.
What each tool is best for
- LOC: a ready pool to cover timing gaps; pay interest only on what you draw.
- Card: easy small purchases and travel; pay in full each month if possible.
Cost & risk: a quick side‑by‑side
| Feature | Line of Credit | Business Credit Card |
|---|---|---|
| Typical APR (example) | ~8–14% variable | ~18–29% variable |
| Limits | Higher (bank‑set) | Lower (issuer‑set) |
| Rewards | No | Yes (if paid monthly) |
| Best use | Inventory/vendor timing gaps | Small, recurring, paid in full |
Example cost (illustrative): Borrow $25,000 for 60 days.
LOC at 12% APR ≈ $493 interest; card at 22% APR ≈ $904. Check your actual terms.
When a LOC is the smarter move
- Inventory builds or large vendor payments while you wait for AR.
- Cover timing gaps you can repay quickly.
See our industry example here: Leveraging a Line of Credit (Restaurant Guide).
When a card is perfectly fine
- Small recurring tools, travel, minor supplies—paid in full monthly.
Decide in five questions
- Will I carry a balance beyond one cycle?
- Is this expense recurring or one‑time?
- Do I need a larger limit than my card offers?
- How quickly will AR land?
- Do I have collateral and a relationship with my bank?
Do this next
- List the expense purpose, amount, and payback timing.
- If payback ≤ 90 days and amount is big, talk to your bank about a LOC.
- If day‑to‑day and paid monthly, use a business card—avoid carrying balances.
Key numbers
- Rule of thumb: don’t carry card balances beyond one cycle.
- Runway: keep ≥ one month of payroll in accessible cash/LOC.
FAQ
Will a LOC hurt my credit? Banks will check business (and sometimes personal) credit. Using a LOC responsibly can help your credit profile. Are credit card rewards worth carrying a balance? No—interest costs typically outweigh rewards if you carry balances. How do I get LOC‑ready? Prepare clean financials, AR aging, and a simple cash‑flow forecast. We can help.
Need help? Get bank‑ready financials and a forecast: Controller and CFO Services.