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The line between credit cards and small business loans isn’t exactly clear. They both supply extra funds that are essential for a prosperous future and allow business owners to run and grow their companies at the same time.

But after exploring the pros and cons of each option, you’ll find they are best suited for drastically different types of expenses.


Qualifying isn’t an issue for either option, even if you have bad credit. What you should know is that bad credit severely limits how much you can borrow with a credit card, since the amount is based on how much you can put down as a deposit.

Thanks to alternative business lenders like United Capital Source, business owners with bad credit can obtain sizable loans that do not require any sort of collateral or deposit. As long as you can prove that your business has a steady income, it’s possible to qualify for several bad credit business loan programs with flexible terms.


Regardless of credit score, you can usually access up to $50,000 with a credit card compared to up to $5 million for a small business loan.


Initial interest rates for both depend on credit score and, in the case of a business loan, how long it will take you to pay off the debt. Credit cards typically carry higher rates unless the loan is for a very short term, like three to six months.

Both carry additional fees as well, and once again, it’s usually credit cards that carry more. This includes annual fees, which stem from the fact that business credit cards offer a revolving line of credit, or a credit limit that can be renewed over and over again as long as you keep paying off the maximum amount on time.

Credit card payments are related to how much you borrow as well as how much you make on a monthly basis. If you consistently borrow a lot, your monthly payments skyrocket and your credit score drops. If you borrow the same amount every month, your monthly payment stays relatively the same.


Payments for a standard business term loan are monthly and won’t go up or down, no matter how much of your business loan amount you use at a time. Other programs offer flexible terms, like Revenue Based Business Loans or Business Cash Advance, which takes payments in the form of a percentage of your total daily sales. There is no fixed payment or due date necessarily, but effective interest rates go up if there isn’t a lot of time between payments.

It’s important to note that the only way a small business loan can hurt your credit score is through a missed or late payment. A credit card can hurt your credit score not only through payment difficulties but also by simply borrowing a greater sum of money.


In order to determine which option is best for your small business, consider what you plan to do with the borrowed funds. Are you looking to make a crucial investment that will grow your business and increase revenue, or do you just need to pay your monthly bills on time and cover the occasional business trip?

Mark Cuban famously said that only “morons” take out loans to start a business. He’s right, because you have no way of knowing whether your business will be able to pay off the debt. Sure, you can pay your bills now, but what about when the business loan runs out? You’d have to apply all over again, a waste of time if your business isn’t making any money.

A small business loan should only be taken out with the goal of increasing revenue so much that paying off the debt is not a problem at all.

These investments, which could include buying extra inventory, taking on new hires or launching a marketing campaign, are usually far too expensive to be covered by a credit card. And even if you don’t max out your credit card, you’ll face massive monthly payments and interest.

Worthwhile investments take time to pay off, but credit card payments must be made each month, no questions asked.


If you intend to start a business, apply for a credit card. If you intend to grow a business, apply for a small business loan. A credit card is best for regular, minimal expenses while a business loan is best for high-importance, major investments that will lead to major rewards.

United Capital Source has given thousands of businesses the means to expand just days after they applied for help. If your business has the opportunity to grow but lacks the working capital to do so, visit the UCS website or call 855.933.8638. Your industry, credit score and concerns about cash flow will not prevent our funding experts from finding a program that is perfect for you.

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