While a credit card and a business loan are sources for borrowing money or credit, there’s much more than what meets the eye when you compare them to decide which of the two is resourceful for your business.
1) Credit Score Requirement:
Credit Card: An applicant needs a minimum credit score (CIBIL) of around 750.
Business Loan: An applicant needs a minimum credit score of around 720.
Note: The score can vary from lender to lender, but the minimum score required for a credit card is usually higher than that for a business loan.
2) Approval Process:
Credit Card: A credit card approval may take between 7 to 14 days.
Business Loan: Depending on the lender and all requirements met, a business loan approval can also be received in a matter of a few hours.
Credit Card: A credit card focuses more on revolving debt, which means you can borrow money as and when you need it and you have to pay a bill for the money you spent.
Repayment is usually at month end. If not paid, balance is carried forward. However, the higher the balance that you carry forward, the more the accrued interest that you end up paying.
Business Loan: A business loan is a fixed type of debt. You borrow a fixed amount of money and pay equal instalments on a monthly basis.
Note: Interest is accounted for in both; credit cards and business loans, but RoI is higher in credit cards.
Credit Card: A credit card is an unsecure means of credit. This means that the interest is higher for a credit card than for a secured business loan.
Business Loan: Business loans are usually secured with collateral, especially if the amount is high. This paves way for a low interest rate because repayment guarantee is assured against an asset.
5) Rate of Interest:
Credit Card: The annual rate of interest is comparatively much higher.
Business Loan: A comparatively much lower annual rate of interest.
Which is better?
While Credit Cards and Business Loans are both efficient sources of credit, a Business Loan is the wiser choice as it helps financially for a longer term.
Furthermore, ‘Business Loans’ include:
1) Working Capital Loan
2) Equipment & Machinery Loan
3) Loans for Buying Commercial Premises
And many more.
Hence, while Credit Cards may seem to be an easy way out, if you think wisely, It is always safer and more advisable to resort to a Business Loan to prosper and flourish your business.