Raising Start-up Capital with Credit Cards

A Credit Article Contributed by Mark Mcclelland

Thinking of Raising Start-up Capital with Credit Cards

We all know that starting a new business is capital intensive, but did you know that credit cards can help? Especially if you were wise enough to get several before you quit your day job to start out on this new venture. Trying to raise the capital by pitching your new idea to investors, or trying to find "angels" is really more than most of us can manage.... simply finding and furnishing office space, trying to find and develop client relationships, dealing with employment and employee matters, is enough to make us pull our hair out.

But if you have the resources, be they personal credit cards or a personal fortune, you know you're going to use them to funnel (or simply pour) capital for your new business until it can operate under it's own steam. Finding outside capital is the one thing most entrepreneurs find the most difficult.

Even though today's new business owner is much more likely to simply dig into their own pockets than spend the large amounts of time required to find outside funding, there are times when you're pockets are rather bare. What do you do then? Well, a variety of capitalization options are available for small companies but to find them you're going to have to bite the time bullet, hunker down, sharpen up your negotiating skills, and prove that you truly believe in your new startup to anybody who'll listen.

How Do You Use the Capital Afforded by Your Credit Cards

But if you have a couple of credit cards with nice clean balance sheets, careful use and management of these cards can keep your company alive in it's early days. Not only that, but careful planning can keep you from digging a hole for both yourself and your company so deep that neither of you can get out.

Here are a few things you should do:

If there's any way you can, you should pay off your credit card balances every month, keeping your options open for future emergencies. You should also transfer balances from a higher interest rate card to one with a lower rate when you've freed up enough room on the lower rate card - but watch out for those transfer fees. Also, don't be shy about calling the card issuer when those low introductory rates expire, asking for a lower rate.

And, although this might raise a few eyebrows, you can work with your suppliers, asking that they bill your credit card just after your monthly bill closes rather than when you make purchases; this can give you up to 30 additional days to actually pay the bill.

Don't Make These Capital Mistakes with Your Credit Cards

Even though approximately 60% of the companies using credit cards pay them off monthly, the other 40% don't... and that's a lot of small business debt floating around. Probably the most damaging thing you can do is make you payments late, miss payments, or default on your payments altogether. It used to be that credit card companies would give the business owner a little leeway - 30 days or so - to clean up their account. But no more.

If you're even one day late the card issuers are going to smack you with late fees.... and do that twice within a 12 month time frame and they'll pump up your interest rate and start sending negative reports to the credit reporting agencies.

Start down this road and it's very difficult to recover. Higher rates make it more difficult for you to pay your bills. Then you max out your cards and start missing you bills; your credit dry's up so fast it was like it never existed to begin with. No credit, no capital, no business. It's that simple.

Use your credit cards to provide working capital for your new business unwisely, and you run the risk not only of damaging your own personal credit history for may years into the future, but your compony could wind up in bankruptcy. It's just that simple. Use it if you have to, but use it wisely.