When it comes to choosing the best loan option for your small business, it’s easy to feel caught off guard when it comes to terms and methods. At Lendifax, we want you to be knowledgeable about your borrowing transactions in order to find the option that works best for you and your business. In this article we look at the advantages and disadvantages of two borrowing options: line of credit and credit cards.
Line of credit
The line of credit is a flexible way to borrow and spend a pre-determined amount as you wish as long as you repay the amount spent.
Line of credit is a flexible way to buy what you need when you want it. Lines of credit have much lower interest rates than credit cards, especially if you opt for a secured line of credit, which offers you lower interest rates, lower monthly payments and greater limit on what you can buy compared to unsecured lines of credit. Lines of credit are especially useful in situations where you have recurring cash expenses and you do not know the exact amounts beforehand, such as home improvement projects.
Given the flexible nature of the line of credit, it is easy to get carried away with spending without thinking about the accumulating debt. More importantly, lines of credit do not offer grace periods or rewards like credit cards do. Lines of credit must be approved by the banks, which can take time without ensuring a satisfactory result. Interest rates also attach to the bank and vary with the bank’s key interest rate so, as interest rates rise or fall, so will the amount you have to repay.
Credit cards are payment cards with a pre-set limit that allows you to make purchases easily with a promise to refund.
Using a credit card is a great way to shop for what you need quickly. Credit cards are often accompanied by rewards programs and “extras” and allow cash advances when necessary. Credit cards are widely used and do not require the same approval process as that of lines of credit.
As with lines of credit, the convenience of the credit card makes the debt snowball effect more common, because it makes impulse buying easier. Credit cards impose fees on cash advances but more importantly, it is the fact that credit cards offer very high interest rates which can increase if the repayment is not made within the predetermined period of time. Spending on credit cards means that future income is used to pay for purchases made now and can result in losses if payments are not made on time.
What you must remember?
Lines of credit are very common among small business owners, while credit cards are more often used for personal purchases. However, both require a commitment to the bank and represent fewer freedoms in the future. Small business loans, such as those offered through Lendifax, offer an attractive alternative for small businesses. The advantage of a small business loan at Lendifax is that of a quick loan of a predetermined amount that will not change or fluctuate, making the future of your business more secure in the long term.