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Finding the capital to start a business or expand in this economy can be tricky and can make using a credit card to finance your business potentially appealing. After all, you may have an established line of credit and a positive history. And you may have several thousand dollars in available credit, and an offer from your card company to increase your limit. But there are some important things to consider before you launch into credit card debt. First, you need a good idea of what you want to do in your business and of the financial implications of using your personal credit for business needs. There may be different considerations if you are planning to expand your business versus starting a new business. For example, if your business is well established and growing, you may be more inclined to take on short-term debt because the risk of failure is relatively low. Conversely, using a credit card to start a new business involves more risk and must be weighed accordingly. Most, if not all, new businesses start out as micro businesses or small business enterprises. By definition, a micro business (the smallest of the small), has five or fewer employees including the owner, has less than $500,000 in annual gross revenue and requires less than $35,000 in start-up money. Even Microsoft and Google, each started by entrepreneurs still in college, had humble beginnings. To the entrepreneur, the potential dangers and pitfalls of using a credit card to finance a business are two-fold: lack of control and lack of planning. In issuing unsecured debt, the credit card company wants to retain as much control as possible. It dictates an interest rate and credit terms that are often not in the borrower's favor. For example, the interest rate can hover around 15 percent and go well above 20 percent for some borrowers. Even when a 0 percent annual percentage rate (APR) is offered for six to 12 months, one late payment can cause the rate to soar and remain high until the balance is paid in full. That is certain to hamper the success and eat at the profits of any business. Credit card companies have also been known to change their terms for purchases, cash advances and balance transfers. Even though you may have a great interest rate for that first piece of equipment, you can't assume the rate won't change as you look to your business's future needs. Have a Plan Since credit cards have, over the years, become the quick fix for purchases and paying bills, some business owners are lured into debt without a solid plan. Even a simple outline identifying your vision, goals, marketing strategy and financial plan can help you make smart decisions. Financing a good-or even great-idea with a credit card is probably not the solution if you have not planned appropriately. Answering the following questions will help you determine if using a credit card is the best, or even a viable, alternative: • How much money will you need? Finding Financing Resources The state of NH has several resources available to help small businesses with their financing needs. The Small Business Administration provides banks and other institutions an array of government-backed lending products for businesses. The Northern Community Investment Corporation also provides loans to businesses that have been turned down by a bank. MicroCredit-NH is the only statewide organization that lends to small businesses at all stages of their development. It also offers training through peer business groups, workshops, networking events and more. Loan amounts range from $500 to $15,000 with a fixed interest rate well below that of most credit cards. In addition to loan capital, you can receive assistance completing the application and financial reports. Often, no credit check or collateral is needed for loans under $5,000.
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