Business Loans or Business Credit Cards: Which is Right for Small Businesses

business loans

Micro, Small and Medium Enterprises (MSMEs) having small businesses, requires funds to operate and expand their business. MSMEs need to choose the right and the best finance providing solutions from amongst the several options available in the marketplace. The two popular finance providing solutions available for small businesses are small business loans and business credit cards.

MSMEs need to know the advantages and disadvantages of small business loans and business credit cards, as detailed below, to choose the best-suited option for its small business:

1. Business Loan:

Under small business loan, the leading NBFC like Ziploan. MSMEs grants a business loan amount up to Rs. 7.5 lacs, whereas the amount is slightly higher in number when it comes to business credit cards.

2. Interest Rate

The business loan interest rate in small business loans is usually competitive in nature, whereas it is variable in business credit cards.

3. Eligibility Criteria:

MSMEs needs to have a good credit score, a profitable business, a steady flow of income to qualify for small business loans. Whereas for business credit cards, the applicant of the MSMEs must have a high personal credit score.

4. Type of Loan:

Small business loans are term loan whereby loan amount is provided at once at affordable business loan interest rate whereas business credit cards involve a revolving line of credit whereby funds can be withdrawn multiple times as per the requirement of the business. The drawback in the latter case is that every time the funds are withdrawn, a charge may be levied.

5. Loan Repayment Mode:

The loan repayment in small business loans is monthly payable as Equated Monthly Instalments based on the business loan interest rate and is fixed. Whereas in case of business credit cards, the repayment must be made monthly, and in full amount. And, when the maximum credit limit is reached, the company may be unable to take more credit until and unless the earlier utilized credit is repaid.

6. The Requirement of Collateral:

If a small business loan availed is a secured business loan, then MSME needs to present with collateral to the financial lender whereas there is no collateral needed in business credit cards. However, there are some financial lending institutions like Ziploan, who also offer unsecured business loan that is without any collateral.

7. Approval Time for the Loan:

The approval time for a small business loan may be weeks to months, when opted from banks, whereas if opted from leading NBFC, it happens in as less than 3* working days. While it takes a few working days in the case of credit cards.

8. Usage:

Small business loans are directed for long-term financing whereas business credit cards are best for short-term financing.

To conclude, Small-business loans and credit cards continue to remain as the most popular sources of availing the funding for the business owners. An MSME firstly need to check the financial state of its business and accordingly, identify the loan amount required for its business, ascertain its cash flow to check its capacity for loan repayment, CIBIL score, and lastly check the above-stated advantages & disadvantages of small business loans vs business credit cards to accordingly choose the one best suited for its business.


1 – What is a new business loan?

New business loans are the funds needed by the start-up companies for the commencement of its business venture.

2 – What is MSME loan?

MSME loans are generally unsecured business loans wherein the funds required by the MMSEs to start, operate, and expand its business is provided by financial lenders.

3 – What is Credit Guarantee Fund Trust for Micro and Small Enterprises (CTGMSE) loan?

CTGMSE loan has been launched by the Government to provide financial assistance to MSMEs up to Rs. 2 crores without any collateral.

4 – What are the documents required for business loans?

The documents required for business loans are identify proof, address proof, business registration copy, rent agreement copy, ITR copy, photographs, etc.

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