Credit Cards As Funding For Business Startups And Entrepreneurs
Posted November 25th, 2009 and last modified September 22nd, 2011Whenever entrepreneurs are surveyed about how they funded their business at startup, credit cards come out as the most popular source of funding where the business had less than five employees, followed by loans from relatives and friends.
It is reported that Len Bosack and Sandy Lerner used their personal credit cards to start up Cisco Systems, and also that Larry Page and Sergey Brin resorted to tapping their credit cards when Google needed the necessary computers and office equipment at the start. Many well-known directors and producers had to fund their first outings on celluloid by credit card. If you are in the same position of wanting to start a new venture but having credit cards as your only funding option, then you are clearly in good company.
Best Small Business Credit Card
The CitiBusiness Gold Credit Card is an excellent option for a small business credit card, giving you the benefits of better record keeping on your purchases and the ability to earn Qantas Frequent Flyer points
- $149(half-price annual fee in the first year) annual fee
- 0% p.a. for 4 months (reverts to 20.74% p.a.) on purchases
- 0% p.a. for 4 months on balance transfers
- Cash Advance Rate of 21.49% p.a.
- 55 days interest free
- Minimum Income Requirement of $30,000 p.a.
Funding a business venture with a personal credit card may seem at odds with its intended purpose, but until a business is up and running this use can easily be seen as personal, especially as most business are sole proprietorship.
Funding a startup with a credit card is a pretty murky area. Credit card providers may offer “a business line of credit” but any debt that accrues will be your personal responsibility, as even business credit cards require that you sign a personal guarantee unless the business is incorporated. Even where it is incorporated, banks may require that shareholders with significant ownership sign as guarantors, which means any one can be held liable for the whole of the debt. The more cynical of you may suspect the banks are purposely fudging the issue to allow for more flexibility in their credit card offerings.
You should check to see if you can exclude certain personal assets from the personal guarantee, or if the guaranteed percentage of the loan will decline as the business matures or surpasses a certain net-worth threshold.
The key is to read the Terms & Conditions of a credit card deal before signing on the dotted line or using the card – first-use of a credit card amounts to a tacit acceptance of the Terms & Conditions.
Whatever the potential pitfalls of your personal guarantee, for many entrepreneurs just starting out, credit card funding may be the only way to get their venture off the ground. If you are 100% dedicated to this happening, then the risks are moot because you have no choice. The option of funding from friends and relatives can also come with strings, as there may be demands and deadlines imposed. They may want a cut of future profits or a simple return of their cash. Bear in mind that bringing financial negotiations into families and friendships is always fraught with danger, and there have been many personal relationships foundered on sour business deals.
At least your credit card provider can’t try and remind you of the good times when you were best buddies at school.
Check out today's featured offers:
| Westpac Low Rate | Citibank Clear Platinum | Qantas AMEX Discovery | ANZ Platinum |
 |
 |
 |
 |
0% p.a. for 6 months on purchases & balance transfers |
2.9% p.a. for 12 months |
$0 annual fee Up to 10,000 Bonus QFF Points |
0% p.a. for 6 months on purchases & balance transfers |
|
|
|
|
Subscribe to our newsletter and get "The Ultimate Guide to Balance Transfers"
If You Like This Post...
Get all the latest deals, guides and loopholes go in Credit Card Finder's free bi-monthly email. Don't miss out - join the thousands who get it emailed!
Ask A Question