Credit facility or credit card: which one is the right option for large purchases

When your business is planning to make a big purchase, choosing the right finance matters. A credit facility and a credit card both offer flexible spending power, but each comes with distinct advantages (and potential pitfalls). Understanding which option suits your business best could save you money, while simplifying repayments and supporting growth. Here’s what to consider when deciding between these two finance options.

What’s the difference between a credit facility and a credit card?

A credit facility is a flexible borrowing arrangement typically provided by a bank or lender and allows your business to access funds as needed, up to an agreed limit. You only pay interest on the amount you borrow, with repayments usually tailored to suit your business’s cash flow.

A business credit card, meanwhile, provides instant purchasing power and convenience. It’s ideal for everyday expenses as well as larger transactions. You’ll typically pay no interest if you clear the balance each month, but higher rates can apply if the balance isn’t taken care of.

When might a credit facility be the better option?

If your business regularly needs to fund large, planned purchases or cover significant upfront costs – such as equipment upgrades, stock orders or expansion projects – a credit facility may make sense. 

It typically offers lower interest rates compared to most credit cards, particularly if repayments extend beyond a month or two. Plus, you may be able to make flexible repayments, which could mean you can spread the cost so it’s more manageable and ease pressure on your monthly cash flow.

When could a credit card make more sense?

Credit cards often shine when it comes to convenience, short-term flexibility and earning potential rewards. If your large purchase can be paid off quickly – ideally within the interest-free period – a credit card might be ideal. 

You’ll benefit from ease of use and could earn rewards or cashback, though purchase protections vary and are typically more limited compared to consumer credit cards. Just beware that any balances left unpaid can quickly rack up high interest charges and make credit cards a less attractive option for longer-term financing.

How to decide which option is best for your business

Choosing between a credit facility and a credit card depends on how your business manages money and repayments. It helps to look closely at your spending habits and cash flow before deciding which option is most suitable. Here are a few things to consider:

Repayment timelines

If you’re likely to repay the balance quickly, credit cards often provide interest-free periods. For larger expenses needing longer repayments, a credit facility may offer lower costs and more flexibility.

Interest rates and costs

Credit facilities generally have lower ongoing interest rates. Credit cards may charge higher rates once any introductory offer or interest-free period ends.

Spending flexibility

Credit cards offer instant spending convenience, while credit facilities are ideal for planned or larger business expenditures over an extended period.

Impact on cash flow

Credit facilities allow repayments to align with your business’s cash flow, while credit cards typically demand regular monthly payments to avoid high interest charges.

Consumer protections and rewards

Credit cards can offer perks such as cashback or rewards points. Credit facilities, meanwhile, usually focus solely on financing without additional rewards or perks.

A closer look at business credit cards

If a business credit card suits your needs, Funding Circle’s Cashback business card provides clear, straightforward benefits to help manage your everyday spending. It rewards your purchases while also providing flexibility to handle your cash flow.

• Earn 2% cashback for the first six months (up to £2,000), then 1% uncapped cashback on everything thereafter.
• Up to 42 days interest-free, allowing you to manage repayments according to your business needs.
• No monthly or hidden fees, meaning you pay only for what you spend.
• Accepted anywhere Visa is, online or in-store, with credit limits up to £250,000.

The cashback card can prove valuable if your business regularly incurs expenses – from utility bills to inventory and everyday purchases – especially when you prefer to earn something back each time you spend.

Are there any other options?

Aside from traditional credit facilities and credit cards, your business might benefit from a flexible line of credit like FlexiPay from Funding Circle. FlexiPay lets you manage larger expenses without impacting your day-to-day cash flow. 

Unlike standard finance products, you pay upfront by card or cash transfer, or even directly into your business bank account, and then spread repayments across 1, 3, 6, 9 or 12 monthly instalments, with no interest or annual fees, which are replaced by one flat fee. 

Both FlexiPay and our Cashback card offer limits up to £250,000, meaning they can also be handy for large purchases. 

Choosing wisely helps your business grow

Deciding how you finance purchases directly impacts your business’s bottom line. Whether it’s the flexible repayments of a credit facility, instant convenience of a cashback credit card or a versatile line of credit like FlexiPay, choosing wisely can help your business save money while it manages cash flow and grows with more confidence.

While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.