Credit and small business
It's that good old entrepreneurial spirit that drives many of us to reach
into our trove of credit cards
to finance business dreams. Newspaper
stories abound on the subject: the low-cost independent film that was only produced
because the director/screenwriter/actor maxed out his credit cards and the garage-based
inventor who sold his masterly machine prototype just in time to stagger out
from beneath his massive credit card burden.
But why didn't these heroes take out a low interest business loan instead
of piling debt
onto their cards? For one, it's much easier to pay
with plastic than plead one's case before a loan officer. The credit card
bill becomes a bookkeeping record as well. Without a track record of business
success, obtaining a small business loan at an attractive rate can be difficult.
Moreover, some entrepreneurs choose the personal credit card route because they
realize that many business loans require collateral. While they'll risk
their time and reputation pursuing their dreams, they don't want to gamble
with their home.
If you're going to use credit cards to finance a business, it's a good
idea to build up your lines of credit
before quitting your steady employment.
Self-employment alone can cause some creditors to flag a credit application
because an estimated 20 percent of bankruptcies are filed by failed small businessmen.
You should always set a limit on the personal credit you will use to help finance
a small business. Going beyond that limit may cause you to lose control of debt
and, ultimately, your business. In business and personal financial matters,
good credit is one of your most valuable allies. Use it wisely in all situations.