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Credit Cards: A Small-Business Financing Tool
When I launched my own firm, Adaptive Consulting Partners LLC, or ACP, a systems-integration and professional-services company, I immediately did what many entrepreneurs do to secure financing: I approached local commercial banks for the $50,000 needed to cover costs during the first year.
Just as typically, perhaps, I was turned down.
Where to turn? I briefly considered-but discarded-the idea of a loan against my house. I didn’t want to put my single largest personal asset at risk.
So there was only one source remaining: plastic. In deciding to use this form of debt-during those first eighteen months, I had up to $20,000 on cards at any one time-I discovered credit cards have become today’s startup business financing tool. If used judiciously, they have more to offer the entrepreneur than even a commercial bank loan.
My most important job was to make my clients love me, and I knew that time was of the essence. Only plastic debt matched my need for time-sensitive financing.
All of my clients need to believe ACP has the substance to survive, and everything from my presentation materials to the way I equip my consultants contributes to that judgment.
Another advantage of plastic is that it is a neutral emotion financing tool, which fits my business philosophy. Never let the business get personal. In shying away from a home-equity line, my wife’s resources, or even our savings from a joint account, I was saying that I preferred to keep my business separate.
Credit-card debt is still debt and must be repaid. Here were the three steps I decided to follow:
1. Think Installment. I wouldn’t borrow any more than what I knew could be repaid within a ninety days, based on projected receipts.
2. Shop Around. Throughout my first year and a half, I moved my balance from card to card three times, each time securing a lower rate.
3. Be Frugal. With expenses going directly onto the plastic and appearing on the following month’s statement, I had an incentive for weighing every purchase.
Photo by effe8.
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Jack on March 2nd, 2007 1:59 pm
This is a subject close to my heart. I have just set up my web design company, launching today, and had to pay for my first expenses on my card due to no other payment options being available.
You’re right, having every purchase itemised definetly makes you consider every purchase you make.
Very thought provoking article.
chuvachienes on March 2nd, 2007 2:43 pm
The key word here is ‘installment’ and how important it is to know what you can afford to pay off every ninety days. You have to be twice as careful though because credit cards today can charge up to 30% in interest. Transferring from one card to another may be an advantage to some but read the fine print always. If you miss one payment on a low-rate credit card – - – they can jack your interest up so fast, you will never be able to repay your debt.
George Manlangit on March 3rd, 2007 9:55 am
As any smallbiz owner know, the first year of operation can really be tough.
I also want to include another key – cashflow. Your cashflow plan should show that an income could be expected that will be able to at least offset the cost (minimum monthly payment) and let you continue to build your business until it builds momentum. Test the marketing and create base standards to measure profitability.
Also, credit card can be a good tool for expense tracking.
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