You need business financing but aren’t sure whether to apply for a loan or a business credit card. You’re not alone. Eighty-six percent of small businesses applied for a business loan, while 31 percent applied for a credit card in 2016, according to the 2016 Federal Reserve Small Business Credit Survey.[1] But how do you decide which is better for your business? Ask yourself the following three questions to help quickly decide which form of financing suits your current needs.

What's the money for?

Many businesses prefer to restrict credit card use to smaller purchases or regular expenses that get paid off at the end of each month due to the typically higher interest rates. For example, say you need to quickly buy supplies to fill a large customer order due next week. You don't have a credit arrangement with the supplier or enough time for a loan approval from your bank. And you don't have a business credit line, a flexible borrowing option that lets you borrow up to a predetermined borrowing limit (similar to but often with a higher limit and lower rate than a credit card), make payments, then borrow again. Yet you do expect to pay off the full balance during the credit card grace period, so you won't pay a high interest rate. In this scenario, you may want to use a business credit card, or apply for a business credit card if you don't already have one.

On the other hand, maybe you're planning to purchase a large piece of equipment in the near future, and you don't expect to pay it off right away. Consider applying for a business loan. A business loan secured by the equipment as collateral could mean a lower fixed interest rate, and loans can provide more money than a business credit card.[2]

How's the business's credit score?

Consider your business's credit history when choosing between a business loan and a business credit card. Some lenders assess business credit card applications based on a combination of a business' credit score plus the personal credit score of the business owner, which may increase the chances of getting approved.[3] Forty-five percent of respondents to the 2016 Federal Reserve Small Business Credit Survey said they used a combination of the owner's personal credit score plus a business credit score to secure funding.[1]

When securing a loan, your business's credit history — as well as score — is an important factor. Business credit reporting agencies like Dunn & Bradstreet and Equifax create your business credit file by collecting information from business filings and registrations and from payment data provided by lenders or suppliers.[4] If your business is young or has little credit history, getting a business loan approved may prove challenging.

Are the financials healthy?

When you apply for a business loan, your lender considers all the company's financial documents carefully for evidence the business can make the loan payments. This includes financial statements, such as cash flow statements, income statements, and balance sheets. It also includes reviewing tax returns and a business plan for repaying the loan.

If you're trying to decide whether a credit card or a business loan is the right option for business financing, consider reaching out to the professionals at PNC Bank for objective, expert advice based on your company's particular situation.