Why are Working Capital Loans better than Business Credit Cards?

April 17, 2024
Updated on

Every small business owner and new entrepreneur in India should secure working capital to facilitate their business growth and success. While business credit may appear appealing as an instant finance solution, it comes with several pitfalls. On the contrary, working capital loans offer greater flexibility and better terms for emergency business financing.

This post presents an insightful comparison between business credit cards and working capital loans, helping you choose the most suitable option for your needs. Ultimately, you will recognize the advantages of working capital loans over business credit cards.

Understanding Working Capital Loans

A working capital loan is for the short-term, and it provides businesses with capital to manage daily business expenses and address cash flow challenges, if any. And choosing a working capital loan over a business credit card is always a smarter option. If you are thinking ‘why’, here are a few features of working capital loans that you should consider: 

  1. Low Interest Rates

As discussed above, business credit cards can charge high-interest rates, sometimes as much as 40% annually. Even though they might give you a short time without interest, the interest charges can get really high when that’s over. 

On the other hand, interest on working capital loans are generally lower compared to business credit cards, which means you can save money over time because you pay less in interest.  

  1. Bigger Loan Amount

Next is, working capital loans can cover both small and big business expenses easily. You can get up to ₹30 lakhs easily by meeting simple requirements. With these loans, you can pick the amount that fits your business best. 

But with business credit cards, your borrowing amount for each mount will be much lower, which may not be enough for your emergency fund requirements in your business. Moreover, if you take out money with a business credit card frequently, you might have to pay an extra fee of 1% to 7% on top of your regular charges.

  1. Repayment Options are Flexible

Believe it or not, flexible repayment options are crucial when choosing the right credit for your business. Sadly, business credit cards do not offer much flexibility. They have a fixed billing cycle, meaning you have to pay off your balance regularly. 

However, certain kinds of working capital loans let you choose how long you take to pay back the money. Lenders can also adjust the loan payments to match when your business makes the most money, so you do not feel overwhelmed during slow periods. 

Overdraft working capital loans are a good example in this regard. Here, you can take out money whenever you need it and only pay interest on what you take. Also, with some loan options, you might be able to pay off just the interest for a while and then pay back the rest later. This helps you keep enough emergency cash for regular expenses while waiting for your customers’ money.

  1. Finance Options are Collateral-free

Working capital loans can be acquired without having to offer any property, security, or gold as collateral. A lot of NBFCs and small finance banks offer these loans without needing any collateral. You will just only need to offer collateral if your credit score is not good. 

Nonetheless, you will have to sign for a personal guarantor when it comes to business credit cards. This means that you are the one who is supposed to pay for the card debt, and if you cannot afford to pay it off, your personal assets and credit score will be affected.

Understanding Business Credit Cards

Personal credit cards may not be very different from business credit cards. But usually, they are made specifically for financing businesses. So, what is a business credit card? These cards are generally used for business purposes. 

A number of reasons that make a business credit card better than a personal one:

  • They are not difficult to qualify for, even if your business is new and has little or no credit history
  • This can give you rewards and cash back on your company spending 
  • They streamline cash flow because you usually have about a month to repay what was used

Yet, business credit cards have some downsides:

  • High-interest rates: The interest rates on business credit cards can range up to 40% APR (Annual Percentage Rate). And this may lead to significant long-term interest fees.
  • Inflexible terms: There are strict limits, with penalties and fees, for surpassing credit utilisation rates and making cash withdrawals.
  • There is an interest-free period: With business credit cards, interest starts accruing from the day of purchase if you do not pay off your balance in full each month.
  • Lesser credit limits: Finally, the approval limits of business credit cards are usually lower than ₹20 lakh, even for renowned and well-established businesses.

Grow your MSME with collateral-free business loans

Why Working Capital Loans are better than Business Credit Cards?

So, now you understand the definition of working capital. Short-term working capital loans provide companies with the funds to manage day-to-day expenses and address cash flow challenges effectively. Here are the key benefits of working capital loans:

  1. Significantly Lower Interest Rates:

Now you know what is a business credit card and you are aware that they often come with high annual interest rates, sometimes reaching up to 40%, leading to substantial accruals of unpaid amounts and escalating costs over time. In contrast, working capital loans offer lower interest rates with options for reducing balance calculations that can lower effective interest costs.

  1. Higher Loan Amounts for Expanded Business Requirements:

Business credit cards typically offer approval limits rarely exceeding ₹15-20 lakh, constraining financing options for businesses with substantial growth needs. However, working capital lenders provide loan amounts exceeding ₹20 Lakhs, based on business eligibility. 

This higher loan ceiling enables businesses to access more significant financing to address urgent expenses or temporary liquidity shortages. Increased working capital also facilitates seizing growth opportunities such as expanding business operations, procuring bulk orders to benefit from vendor discounts, or managing additional inventory for seasonal demands.

  1. Customised Repayment Terms for Enhanced Flexibility:

Unlike credit cards, which necessitate full repayment within 30-50 days, specialised working capital loan lenders like us offer customised repayment tenures ranging from 12 to 60 months, aligning repayment schedules with business revenue streams. 

Options to service only monthly interest payments throughout the tenure further match repayment outflows with income inflows, easing financial pressures during temporary cash flow constraints. 

  1. Broader Eligibility and Accessibility:

While new businesses often struggle to secure credit cards with modest credit limits, reputed working capital lenders like Kinara Capital offer tailored products designed to support early-stage ventures with limited credit histories. 

These lenders employ flexible assessment models focusing on business viability, considering factors such as business vintage, cash flow patterns, credit profiles, revenue quality, existing leverage levels, and future prospects outlined in business plans. 

Additionally, we offer unsecured working capital loans, eliminating the need for pledging business or personal assets as collateral, thereby overcoming challenges associated with obtaining startup funding from traditional lenders.


In India, working capital loans offer better interest rates and payment plans that are meant for a better cash flow. This makes working capital loans a better and smarter choice for handling urgent financial needs in small businesses. Efficient management of working capital can fuel business expansion, stabilise revenue fluctuations, and enhance capital efficiency. This strategic approach aids businesses in preventing cash flow challenges, operating with greater effectiveness, and making informed financial decisions.

Kinara Capital extends unsecured working capital loans tailored for small enterprises to capitalise on every growth prospect. Enrolled MSME proprietors can swiftly assess their loan eligibility in just 1 minute by commencing the digital-first application procedure on the Kinara Capital website or by downloading the myKinara App. Eligible MSME entrepreneurs can furnish the requisite documents, and the loan funds will be digitally disbursed to their bank account within 24 hours.

We have a dedicated customer support team available between Monday – Friday (9.30AM – 6.00PM) at our toll free number 1800-103-2683 for any questions or assistance. This ensures that entrepreneurs can get the help they need throughout the loan process.


What are the benefits of having enough working capital for a business organisation?

Businesses need sufficient working capital to keep operations running smoothly every day and seize growth opportunities. This means having enough money for things like paying employees and bills quickly, jumping on chances to expand or buy new equipment, handling unexpected costs, and keeping up with changes in sales. 

What is the difference between a business and a regular credit card?

The main differences between business and regular credit cards are that business credit cards are specifically designed for business owners, employees and representatives and cater for business expenses only. 

What factors should I consider when choosing a business credit card?

When picking a business credit card, think about the expenses like yearly fees and interest rates, and the perks it offers, such as cash-back or travel rewards. 

How can I manage my business credit card account?

Effective management of your business credit card involves maintaining accurate financial records by keeping track of all expenses and payments made with it. You must monitor employee’s use of their cards through setting spending limits to avoid unnecessary expenditures or unauthorised purchases.

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