The key to business is cash. We all know that. You wouldn’t be in business if you didn’t have some sort of positive inflow. But how can you leverage credit in a startup?
I have been asked to do a review on business credit cards by CreditCardFlyers.com. Normally, this isn’t the sort of post I like to do, but I think it is worthwhile in the startup sense. The fact of the matter is this – not everyone has the savings account necessary to pull off a successful startup. Especially if you are a young entrepreneur! Sometimes, the only way to start a business is by using credit.
Using credit cards to start a business is not something I recommend, but a lot of consultants will tell you it is a viable option as long as the interest rates are low and you do it wisely. In fact, leveraging debt is a great way to magnify your earnings. Unfortunately, I don’t have enough time to get into a real lengthy post on that topic, but I will at a later date.
There are things that make sense to buy with a credit card. Some being server space, domain names, patent and Legal fees, office downpayments, etc. These are all things necessary to the running of your business and they have a long term life cycle. Putting last night’s dinner with the partners on credit is a less-wise move, though.
Truthfully, I have one business card with a max of $500. I hate using it. If there is a emergency domain name that I need to register, or if I need to buy a programming book and don’t have cash, I will pull it out. Other than that, I stay away from it. I didn’t use it to start my business and I don’t use it to finance the expenses of it.
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Jason, I think its probably a bad idea to start a business with credit cards. Too risky.
Don’t forget about interchange fees. Working with the Merchants Payment Coalition I’ve learned that a lot of budding entrepreneurs who plan to accept credit cards themselves don’t realize how interchange fees affect their bottom line.
I agree with you Triston. I don’t like the idea either. The unfortunate truth is that people do do it and can win. It’s not an ideal situation but it can work as long as there is a plan in place to pay off the debt.
You are exactly right regarding merchant services. Accepting credit cards can be a risky business indeed. I am not very well versed in interchange fees, but whenever someone asks me about card processing, I generally recommend paypal (usually in online environments).
I have set up a couple sites with merchant accounts when it was deemed necessary by clients (usually because of bank/merchant services relationships) but I try to avoid those situations.
Thanks for commenting too!