NEW YORK (MainStreet) — Whether it’s to buy a big-ticket item or make payroll, access to credit with good terms is essential for the day-to-day operation and health of a small business.

Some 42% of companies with 11 to 50 employees name cash flow as a top challenge, according to a recent survey by Wasp Barcode Technologies, a Texas-based company that makes inventory-tracking systems for small businesses.

Borrowing money on favorable terms can grow an enterprise, but stiff repayments can hurt the business and reduce the firm's cash flow. Before applying for a business credit card or loan, understand the terms and conditions and APR rates.

Business Credit Cards

A business credit card is one option to cover costs and allows you to establish a business credit history, which will help you further down the line be approved for larger loans at traditional banks.

Roughly 70% of small businesses operate as sole proprietorships, according to the Small Business Administration, a government agency that tracks data on small firms in the U.S.

It’s much easier to be approved for a business credit card than a six-figure business loan for a young business — especially if the business is less than two years old.

When it comes to business credit cards, the term business is used loosely — even sellers on popular online marketplaces, such as Etsy or eBay, can apply. If you're a sole proprietor, you can put down your Social Security number as verification and use your personal credit history to apply.

The advantage of business credit cards is they usually have higher credit limits than personal ones. The other pro is there are typically special introductory offers with rates as low as 0% interest for the first 12 months. It's essentially an interest-free loan for short-term cash if you pay on time. Some of these cards include sign-up cash bonuses.

The downside is some business credit cards carry a hefty penalty for late payments with punitive annual percentage rates (APR). These punitive, variable APRs can run as high as 29.9%.

Qualifying for a Small Business Loans

*Traditional Business Loan*

For small business, the traditional route for obtaining a bank loan is usually only an option for larger, more established businesses with at least two years of credit history.

Most banks are also lending less to small businesses, especially to small firms with under $1 million in revenue, according to the Federal Reserve Bank of Cleveland.

If the business is mature, a good credit score makes it easier to qualify and will help you get a better interest rate. A bad credit score or no credit history at all, with most likely cause the bank to deny a loan.

One type of small business loan is a secured loan, which is backed by securities like certificate of deposits (CDs) and savings. These loans are usually between $10,000 and $500,000 in size. Interest rates on these types of loans, such as the ones issued at TD Bank or Wells Fargo, are most often fixed with repayment plans of five- to seven-years.

*Online Lenders*

The decline in traditional small businesses lending has catapulted alternative lending platforms. It's easier to get cash from an online lender, but you’re likely to pay more in interest.

Most online lenders use algorithms to underwrite small business loans based on a number of factors — credit score, revenue and cash flow. But, they also include non-traditional factors, such as your accounting data, merchant reports and social media data.

These numbers are crunched, and loans are issued within a few hours or a couple days, depending on the online lender.

Online loans can sometimes be greater in amount than the limit offered on business credit cards, lending up to $300,000. Online lenders, such as OnDeck, Swift Capital or Kabbage, require borrowers to be in business for at least one year.

OnDeck provides $5,000 to $250,000 in next-day funding with a 2.5% origination fee. APR ranges from 19.9% to 49%.

Swift Capital boasts an 80% application approval rate, lending between $5,000 and $300,000. APRs start as low as 9.9% with a 2.5% origination fee and term limits range from three to 12 months.

Kabbage operates similar to a line of credit, lending between $2,000 and $100,000 for six months. Terms are set between 1% and 12% APR for the first two month followed by 1% for the remaining four months.

There is also a host of different type of business loans available to young start-up small businesses - especially those with less than one year under their belts.

Karrot, a consumer product by Kabbage, can be used by start-up businesses. These start-up business loans go up to $35,000 at a fixed rate with 36- to 60-month payment terms. Rates for these loans start at 6.4% and are based on your personal credit.

“We can give them a personal loan that they would never be able to get from their bank and use to run their business if they want, but it's a consumer loan,” said Kathryn Petralia, head of operations at Atlanta-based lender Kabbage.

There's also Prosper, a peer-to-peer lending group, that has loans come from individual investors. To apply, potential borrowers say the amount needed and purpose for the loan. If enough investors contribute, then the loan is funded. Prosper loans are usually $2,000 to $35,000 in size with interest rates from 6% to as high as 36% APR.

The takeaway

Consider how much funding is needed and don’t forget to factor in fees, including origination charges. Different lenders provide niche-lending products based on whether it’s a mature business or a brand new start-up.