Small Business Credit

Published on Mar 18, 2015 11:29 am

For many first-time business owners, it’s sheer force of habit that leads them to reach into a collection of credit cards to finance their big idea. 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 utilize small business credit and take out a low interest small 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, if your credit limit can stretch to it. The credit card bill becomes a bookkeeping record as well. Without a track record of independent business success, obtaining a small business loan from a bank at an attractive rate can be difficult. So many small businesses don’t end up turning a healthy profit that it’s no surprise banks are wary of extending a loan with low rate of return. Moreover, some entrepreneurs choose the personal credit card route because they understand that many business loans require collateral. While they’ll consider risking their time and reputation pursuing their dreams, they understandably don’t want to gamble with their home or other tangible investments.

If you’re going to use credit cards to finance a business without small business credit, it’s a good idea to build up your lines of credit gradually 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 business owners. You should always set a limit on the personal credit you will use to help finance a small business–and stick to it. Going beyond that limit may cause you to lose control of debt and, ultimately, your business and other assets. In business as well as in personal financial matters, good credit is one of the most valuable allies that can speak to your ability to manage your financial responsibilities regularly. Use it wisely in all situations.

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This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc., an Experian company.   © 2014, Inc.  All rights reserved.

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