Business Loan VS Business Credit Card - Which One Do I Choose

Join the Esme team as we run through both the pros and cons of business loans and business credit cards, so you can choose the right business finance option that works for you and your business.
Business Loan VS Business Credit Card - Which One Do I Choose

Choosing the right finance for your business can be hard, especially when there are a number of options available for your business. A business loan and business credit card are two of the most popular sources of finance for a business, but which one is best for your business?

Join the Esme team as we run through both the pros and cons of business loans and business credit cards, so you can choose the right business finance option that works for you and your business.

Business Loans

Business loans can be a great source of finance for businesses looking for a large sum of money and to repay it over a period of years. They are most commonly used by businesses to manage cash flow, improve working capital, invest in assets and expand a business.

Pros:

  • You can usually borrow larger amounts – a business loan could be a great choice if you’re looking for a large sum of money in one go. The maximum amount you can borrow depends on the lender and loan you choose. Here at Esme, you can borrow between £10,000 and £150,000 if you’re a limited company, and between £25,500 and £150,000 if you’re a sole trader.
  • Interest rates are usually lower – interest rates with a business loan are typically lower than with a business credit card – therefore you could be paying back much less. Here at Esme, you will agree a repayment period before receiving any money. The repayment amount will usually include a fixed interest rate which means you’ll always know exactly how much you’re paying back each month.
  • Flexible loan repayment terms – With a business loan, you can choose how long your repayment period is to ensure it works for your business. You are then aware of the fixed interest rate applied to the loan and exactly how much you’ll be paying each month. There are also no early repayment fees with Esme if you decide to pay your loan off before the end of the term.
  • The loan can be with you within the same day – the process for an online business loan is quick and simple. All you need to do is apply using our 10 minute application form. If you get approved, the money could be in your account within an hour.

Cons:

  • A director’s guarantee may be required – It is common that you will be asked to provide either security by way of an asset, or a director’s guarantee for a business loan. Here at Esme we don’t take security over an asset, however we will ask for a personal guarantee from a company director, which means they will be responsible for paying the loan in case the business is unable to.

You can find out more about the type of business loans available by reading our how to get a business loan guide.

Business Credit Card

A business credit card can be a great option for businesses wanting to look for smaller amounts of finance that can be repaid over a shorter period of time.

Pros:

  • You may get some perks or cashback – like any credit card, a business credit card often offers some sort of cashback or rewards to incentivise choosing them.
  • Some cards may offer 0% APR – this is a great advantage for businesses looking to borrow over a short period of time. However, be wary - this will usually apply for a limited time and after you could be paying high interest rates on your balance.

Cons:

  • Higher interest and variable rates – credit cards typically have much higher interest rates than business loans, so you may end up paying back much more than you borrow. Credit cards also offer variable rates, and therefore from the point of borrowing money to the point of paying it back, your interest rate could have drastically changed.
  • High balance - it’s worth keeping in mind that a high balance can sometimes hurt your business credit and affect your chances of getting a loan or further business finance in the future, especially if you’re unable to meet the minimum payments each month.
  • A director’s guarantor may be required – a business credit card will usually not require an asset to be used as security, however it is common that they ask for a personal or director’s guarantor, which means the business owner is responsible for paying the loan back to the lender in case the business is unable to.

How can Esme help?

If you’d like to find out more about business loans head over to our blog. If you’re interested in taking out a business loan with Esme, why not get an instant quote today or try our business loan calculator.