The BizFilings blog covering business tips and trends.
A Few Thoughts on Startup Credit Card Financing
Published on Jan 31, 2011
Read 'A Few Thoughts on Startup Credit Card Financing' at 'Time to Start Up,' the small business blog by BizFilings.
Recent surveys have shown that the majority of entrepreneurs finance their startups primarily through credit cards. The Pioneer Institute recently reported that the two most common financing methods among businesses with fewer than five employees were loans from relatives and credit cards.
While credit cards may be a valuable financing option - especially with fewer lending opportunities as a result of the recession - small businesses and startups should heed a few pieces of advice.
First, the majority of U.S. small businesses are sole proprietorships, meaning that any debt or financial obligations that startups incur will be delivered upon the owner.
"Unless your business is incorporated, you're the de facto guarantor of all business debts," writes Asheesh Advani for Entrepreneur magazine. "So if your business has a slow sales quarter and you fall behind on your credit card payments, your personal credit rating and your personal ability to borrow are at risk."
Credit cards are a valuable financing option, so they should not be discouraged altogether. But small firms - particularly those with high growth aspirations - may want to get incorporated or form an LLC to protect principals' personal assets from the business' credit card debts.