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Finding enough working capital and other funding for a startup small business is often the toughest part of creating a viable company. And traditional bank loans are generally unavailable for firms with no financial history. Credit cards are available to almost everyone though and can provide easy capital to entrepreneurs. Is this a smart option for new businesses?

Whether or not it is smart, it is a popular method of financing. In the National Small Business Association’s 2014 year-end report, 36 percent of all small businesses said they used credit cards to help finance their company’s needs in 2014. And that’s only slightly higher than the historical average of one third of business owners using credit cards for at least some funding.

Unfortunately the use of credit cards can be risky. A recent study from the Ewing Marion Kauffman Foundation found that for every $1,000 in credit card debt taken on by a new small business, the chances of long-term survival as a company decrease by about 2 percent.

So how can you minimize those risks if credit cards are your only options? First, it is essential to view them as a temporary fix. Make a business plan that includes exactly how you plan to grow and start generating revenue so that you can transition away from credit cards for working capital. Without a plan with definable goals and steps, you could get into serious debt trouble.

Secondly, while your credit line may be generous, determine to use only the minimum amount you need to scrape by. Let demand regulate your production and expansion, rather than just throwing money at products and hoping customers will appear.

Finally, seek out credit cards that offer 0 percent annual percentage rates (APR) giving you an interest-free grace period to start turning a profit and repay your debt.
While not ideal, starting a business with credit card financing can be successful if you use it wisely.

 


Search for Small Business Loan Sources and receive your matched lender list
AND received FOUR free Business eBooks worth $39.95!
Search for Small Business Loan Sources