SME Loan or Credit Card Debt – Which Will You Choose?

You want to scale-up your business and are scouting the market for some additional funding. Some might advise you to take a small business loan and some ask you to put it on your credit card.

Which route you decide to go ultimately depends on your requirement, but before you go, consider the reasons why we believe an SME loan is a much better and smarter idea.

  1. More options

With a business loan, you have multiple options – of the lender you are borrowing from, the type of loan you want, the repayment options, to name a few. You can approach a bank or a private lending company for an SME loan. The choice of loan also includes secured or unsecured loans; you can opt for micro finance or a term loan; if you are a woman entrepreneur there are many loan options for women-owned businesses alone. In comparison, a business credit card offers you very few options and it does not take into account the needs of your business.

  1. More flexibility

Small business loans offer you more flexibility. You can opt for a term loan or you can open a line of credit. In case of a term loan, you take the lump sum amount of money and pay it back with interest over a pre-decided given period of time. A line of credit works like a credit card, and allows you access to money that you can borrow and repay as often as you wish. The advantage here is that you don’t need to worry about unpredictable fees and penalties unlike what you might encounter with a credit card. Keep multiple channels of funding open.

  1. More security

Besides racking up hefty interest, credit cards come with a set of security challenges too. Every day we hear of data breaches at vendor establishments or financial institutions. Then there is also the probability of your card being fraudulently used by someone visiting your office regularly. While you might not be liable for the purchase, it is just a lot of trouble that you can avoid. A loan gives you access to funds that you alone can access. There are no ugly surprises and you know the funds are there when you need them.

  1. More growth opportunity

How does a loan encourage more growth, you might wonder. The flexibility that we spoke about earlier is what empowers an SME. Unlike a credit card debt that is a continuous stream of expense, a loan allows you to stagger your payments as per the schedule that you set up with the lender. With this form of flexible business funding, you can focus on scaling up your business and worry less about payments. Better fee structures and reliable financing, with fixed interest rates, give you the peace of mind to work on your business and pay off your debt, in parallel.

What’s the verdict then? A credit card is a good idea for daily, smaller expenses. It might even seem easier than getting loan approval. However, when you weigh in the pros and cons of both, you will realize that taking a small business loan as business funding works out to be a better deal than credit card debt on many counts.