Over the past few weeks, I have seen a significant amount of articles, blogs, and content debating the definition of a Small Business Loan. Much of the debate is focused on the size of the business. For example, many of the large banks consider any business with revenues less than $20 million a Small Business. Of course, my opinion is that any business nearing $20 million in annual revenues isn’t even close to a small business. For me, a small business is a main street business: restaurants, dry cleaners, gas stations, car dealerships, etc. The overwhelming majority of these businesses have annual revenues less than $3M!
However, one of the debates that has me undecided is the discussion regarding whether a business credit card should be considered a small business loan. Here are some of the characteristics that could put it into the “loan” category:
- The line/amount extended on the credit card is in fact a loan (extension of credit) by the financial institution.
- Usually, there aren’t any restrictions on how you can use the credit card.
- The amount used has an associated interest rate and terms for repayment.
However, there are also other reasons why you wouldn’t include it in the “loan” category:
- Usually higher rates and fees.
- Smaller loan sizes.
- Loan amount revolves.
- Usually can’t access the amount in cash.
- Usually can’t write checks from the account (without some balance transfer fees).
Why would or wouldn’t you consider a business credit card a small business loan?