Financing a New Business with
Credit Cards |
By Ken Bissonette |
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Small business owners, or prospective small business owners have
limited sources of financing when they first start out. Bank
lenders have such stringent lending criteria that they often
will not lend the amount needed by the entrepreneur to fund
their startup. Even corporate finance companies will hesitate to
loan money to start-ups as the risk for failure is high and the
new company has no tangible assets that a loan can be secured
against.
One of the easiest sources of financing a new
business is credit cards. There are many stories of
entrepreneurs who have funded their start-ups on credit cards.
The credit cards are easy to get (applications are frequently
sent in the mail) and plentiful through a number of different
financial institutions. And frequent spending on these cards
will even cause the credit card companies to increase the
spending limits on their cards!
Of course, credit cards
are a very dangerous financing tool if spending gets out of
control and the holder cannot pay his or her debts off in a
timely manner. New credit cards offers usually carry a low
introductory rate, but 6 months later a much higher rate of
interest can kick it making the borrowed money extremely
expensive.
Regardless of this danger however, there have
been numerous entrepreneurs who have started out their small
businesses financing operations with their credit cards. Most of
these people would then switch to more conventional financing
options (ie banks) once they had a proven cash flow. But in the
start-up phase, credit cards can prove to be an instrumental
option for financing a new business when other sources of money
are very tight. |
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