Your business may often require quick cash for daily operations, be it to take advantage of a good deal on raw materials or to cover costs of repairing machinery. In these circumstances, you might be inclined to use your credit card to make payments. But is this the right choice when working capital loans are easily available, especially considering the better rate of interest? Take a look at why you should pick a working capital loan over using a credit card.
The interest rates are lower
Business credit cards charge high interest rates on purchases, which can be as high as 40% per annum. Also, while some business credit cards offer an interest-free period, remember that this is only temporary. Instead choose a working capital loan that offers you a low rate of interest throughout the tenor. A winning example is the Working Capital Loan from Bajaj Finserv. When you take this loan, you can enjoy a nominal rate of interest, long tenor and an easy online application.
The loan amount is higher
With working capital loans, you have the option of selecting the size of the loan. Typically, you can easily secure up to Rs. 55 lakh by meeting easy eligibility criteria without submitting collateral. On the other hand, business credit cards offer lower monthly limits that are not easily increased, therefore restricting your access to finance. Further, cash withdrawals through business credit cards come at a high fee, which can vary from 1-7%, in addition to the interest that you have to pay.
Better repayment options are available to you
Credit cards do not offer long, flexible repayment periods. Besides, you have to pay a high annual fee, cash advance fee, etc. On the other hand, working capital loans are more flexible. You can choose a tenor of your choice based on your financial situation. And, if you choose a Flexi Loan, you can pay interest-only EMIs and repay the principal at the end of the tenor.
Flexi Loan facility gives you access to funds on your terms
Unlike business credit cards, you can avail a working capital loan in the form of a Flexi Loan. Here, you have the freedom to withdraw funds as and when the need arises. You only have to pay interest on the amount that you use. Besides, you can choose to pay interest-only EMIs to reduce your monthly outflow, and repay the principal at the end of the tenor. So, if you find that you need immediate funds to meet a cash flow crunch, you can use funds from this facility and repay the principal later, once you receive payments from your clients.
Additional Read: Flexi Business Loans Explained
Funding is completely collateral-free
With a working capital loan, you don’t have to submit collateral or nominate a guarantor to get funds. But, when it comes to business credit cards, you may have to sign a personal guarantee, which exposes your personal assets in case you are unable to make payments towards the credit card bill. Not only does this jeopardise your personal assets, it also puts your credit score in a vulnerable position.
Additional Read: How To Get A Collateral-Free Loan With Ease
So, you can use credit cards minimally for small payments that you are sure you can pay off at the end of the month. For all other needs, opting for a working capital loan with a Flexi Loan facility is a better option.
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