Types of Business Credit

Business credit line

Opening a credit line gives you the option to borrow money in the future. When you open a credit line, your account will have a credit limit, which is the most money you can borrow at one time.

Generally, you only pay interest or fees on the amount you borrow, so borrowing as little as possible will help save you money.

Credit lines are revolving accounts and you can repeatedly borrow from the account without reapplying. For example, you could borrow an amount below your credit limit and the lender will transfer the money into your account. Then, you will repay the that amount plus interest. Once you do, you can borrow up to the full credit limit again.

Or, you might be able to take out another loan while you’re still repaying the first as long as the combined loan amounts are below the credit limit.

Opening a line of credit could help ease concerns about money. You will have some certainty that you can borrow money if you need to pay for an expense or invest in a new opportunity. However, shop different lenders before opening a credit line, otherwise you might pay more in fees and interest than you need to. For example, some (but not all) accounts have an annual fee, which you’ll need to pay even if you don’t take out a loan.

Business loan

Perhaps you need to order a shipment of supplies or want to buy a vehicle so you can make deliveries. If there’s a single expense that you can’t afford in full, taking out a business loan could be a good option.

With a business loan, you’ll receive the full amount you want to borrow immediately and will repay the money, plus interest, over time. There are some special types of business loans, such as equipment loans that you can use to buy (rather than rent) an expensive piece of equipment.

The amount of money you can borrow, interest you pay and how long you have to repay the loan can depend on many factors, including:

• The lender
• Your personal credit (where available)
• Your business's credit (where available)
• Your business plan
• How much money your business makes
• How long you’ve been in business
• Whether you offer collateral, which is something of value the lender can take if you can’t repay the loan, such as a house, business building or vehicle.

Lenders may have different requirements and offers and shopping around to get multiple loan offers could help you secure a good loan. Many small business owners may need to sign a personal guarantee for a business loan, meaning they agree to repay the loan if the business isn’t able to make its payments.

Business credit card

You can use a business credit card to pay for everyday business expenses, and in case you need to borrow money. Business credit cards may offer some benefits that aren’t available on personal credit cards, such as:

• Employee cards, which let you give an employee a credit card that’s tied to your business account. You may be able to limit how much the employee can spend and where the employee can use the card.
• Using a business card could help separate your personal and business expenses, which will make it easier to keep accurate business records and organise your expenses before filing tax returns.
• A business credit card could help your business build its credit history.
• Purchases and balances on your business credit card might not impact your personal credit history. However, you may still be personally responsible for the debt, and unpaid business credit card accounts could wind up on your personal credit reports.

Credit cards tend to have higher interest rates than credit lines or loans, and they may be a more expensive form of financing for larger purchases if you are unable to pay them off right away. However, they can offer a good short-term solution for managing day-to-day expenses.