Access to business funding, including business credit cards, lines of credit, and loans, is essential for effectively managing finances and growth. Establishing a good business credit history could help your business qualify for higher loan amounts and lower interest rates.

3 Types of Credit That Can Help You Grow Your Business

Which type of business funding is right for you?

Access to diverse credit options is crucial for both the growth and stability of a business. Whether you run a small startup or a well-established enterprise, understanding the different options for business credit can help you make informed decisions about managing your finances. In this article, we’ll explore three common types of business credit and their benefits.

Business Credit Cards

Business credit cards are a convenient and flexible way to access credit for your business expenses. They give you working capital in your wallet, as most businesses accept credit cards as payment.

Unlike personal credit cards, business credit cards provide tools and benefits tailored to business spending and management. One key difference lies in the rewards and perks each type of card offers. While personal cards offer rewards like cash back on everyday purchases or travel rewards, business credit cards typically come with perks more relevant to business operations, like rewards for spending on office supplies, telecommunications, or expenses related to business travel.

One item to consider is that employees who are authorized to use company credit cards may abuse this privilege by making unauthorized or personal purchases. You need to be aware of your company’s policies on making unauthorized or personal purchases.

To mitigate this risk, establish clear policies and enforcement procedures regarding company credit cards. These may include limiting the number of employees authorized to use the cards, setting spending limits for individual cards, and regularly reviewing transaction records to identify unauthorized or suspicious activity.

Business Lines of Credit

Unlike a traditional loan, in which you receive a lump sum upfront, a line of credit allows you to borrow funds up to a predetermined limit and only pay interest on the amount you use. This flexibility makes it an excellent option for businesses with fluctuating cash flow, including seasonal businesses, or those anticipating occasional large expenses.

With a business line of credit, you can cover short-term financing needs, bridge gaps in cash flow, or seize opportunities for growth without having to reapply for a new loan. For example, a retail store may use its line of credit to purchase additional inventory during peak seasons or to fund marketing campaigns to attract more customers.

The potential benefits of a line of credit include lower rates and closing costs compared to term loans, the opportunity to obtain a competitive variable interest rate with a good credit history, and the ability to pay interest solely on the amount utilized. Additionally, you can make lower payments during months of tighter cash flow without worrying about penalties and have a longer-term financial safety net for unexpected expenses.

However, while a line of credit offers flexibility, beware of overborrowing, which can lead to unsustainable levels of debt. Remember that maintaining a good credit history and demonstrating the ability to repay is essential for securing and preserving a business line of credit.

Business Term Loans*

Business term loans, a non-revolving type of credit, are typically used for larger investments, such as purchasing equipment, expanding operations, or launching new products. Various types of business loans are available, including term loans, equipment financing, and invoice financing, each tailored to a business’s specific needs and circumstances.

Unlike credit cards or business lines of credit, loans usually require informing the lender about the intended use of the funds. Your business might need to meet specific eligibility criteria, including years in operation and minimum annual revenue. Additionally, to assess your ability to repay the loan, you’ll undergo an approval process that involves reviewing your credit history, debt-to-income ratio, and the availability of business capital – all of which will influence the loan amount and terms.

If you’re starting a business and seeking a loan to cover startup expenses, you typically need to present a detailed business plan to the loan officer. This plan should outline your product or service, include market analysis, detail your sales and marketing strategy, and provide financial projections.

Weighing Your Options

Different types of funding can offer unique benefits depending on factors such as the size of your business, industry vertical, business model, and growth stage. For small businesses with limited operational history or collateral, business credit cards are ideal for covering day-to-day expenses, managing cash flow fluctuations, and building credit history.

On the other hand, established businesses, or those in industries with high capital requirements, may benefit from a business line of credit or business term loan, which offer larger loan amounts and longer repayment terms. Term loans are well-suited for financing substantial investments such as equipment purchases and facility expansions.

By leveraging the right mix of business credit, you can navigate challenges, seize opportunities, and establish a strong financial foundation for long-term success.

Let’s Talk Growth

WesBanco offers a variety of lending options to suit your business needs. We also encourage you to reach out to one of our dedicated business bankers if you have any questions or want to learn more!

*Business loans often require collateral, ranging from inventory to accounts receivable. If your business is small, a personal guarantee will most likely be necessary, obligating the you to repay the debt using personal funds if the borrower defaults.

Content is for informational purposes only and is not intended to provide legal or financial advice. The views and opinions expressed do not necessarily represent the views and opinions of WesBanco.

While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.