How a business line of credit and a business credit card differ in practice

They look like the same product in a summary. In use they behave differently in six ways that matter.

Using both, deliberately

The clean structure for most businesses is a card for recurring operating spend that gets cleared every month — capturing the float and the rewards for free — and a line of credit for cash needs that persist for weeks: payroll timing, inventory purchases, receivable gaps.

Where it goes wrong is carrying a revolving card balance month after month. At that point you are paying a purchase rate with no amortisation, no maturity and no plan, and it is usually the most expensive borrowing on the balance sheet. That balance is a candidate for refinancing into an amortising facility with an end date.

Two operational points

Card spend is easy to lose track of because it is decentralised across employees. A line requires a deliberate act to draw, which is a feature rather than a limitation.

And issuers can reduce card limits with little notice, in the same way lenders resize lines. Neither product is a guaranteed source of cash in a crisis. If continuity matters, the committed facility with terms in writing is the one to read carefully.

The arithmetic on a carried balance

Illustrative only — $25,000 carried for eight months. On a card at a nominal 22% purchase rate that is about $3,667 of interest. On a line at a nominal 14% it is about $2,333. The $1,334 difference is the price of using the wrong instrument for a balance you knew you would carry.

Now the other direction. $25,000 a month of operating spend put on a card and cleared in full every month costs nothing in interest and, at 1.5% cashback, returns about $4,500 a year. Run the same spend through a line and you pay interest from the draw date and earn nothing.

Neither product is cheaper in the abstract. The question is only whether the balance goes to zero each month, and you usually know the answer before you choose.

The two fees that catch people

What a card does to your personal credit

Where an issuer reports a business card to the consumer bureaus, the balance counts in your personal utilisation. Illustrative only — $18,000 on a $20,000 limit is 90% utilisation on that account, and utilisation is one of the more heavily weighted inputs in consumer scoring.

That can matter more than the interest. An owner carrying business spend on a personally reported card can watch their own score fall in exactly the months before they apply for a mortgage, an SBA loan, or anything else that scores the guarantor. Ask the issuer which bureaus it furnishes to, and ask before the balance is large.

How to tell what you actually have

Some products marketed as business lines of credit are a series of fixed-total short-term loans. You draw, and instead of a balance accruing interest you owe a fixed repayment amount over a fixed number of weeks, with availability restored as you repay. It revolves, so the word is not wrong, but the economics are a short-term loan's.

Three questions settle it:

1. If I draw $20,000 today and repay it in full in three weeks, what have I paid?
2. Is the cost a rate on the outstanding balance, or a fixed amount per draw?
3. Is there a fee on each draw, and does a draw's repayment schedule run whether or not I still need the money?

A facility where a three-week draw costs the same as a six-month draw is not a line of credit in the sense used above, and comparing its rate with a bank line's is comparing two different things.