Personal credit card funding
When interviewed, most entrepreneurs who started their business with less than five employees state that they used their personal credit cards as the main source of funding in the beginning. Loans from relatives or friends were less popular, which may not be too surprising considering how people seem to physically shrink when the question of lending money is brought up.
A few famous names who used credit card financing who may ring some bells are Len Bosack and Sandy Lerner of Cisco Systems, and Larry Page and Sergey Brin of Google who tapped their personal plastic to kit out their offices at the start. It is also known that many now-famous directors and producers could only make their first movies by calling on the available credit on their personal credit cards.
Of course, a business credit card is a better idea for a start-up, but until you get going with your venture this may not be an option. Rest assured, though, that if you do have to use your personal credit card to finance your plans, you won’t be the first nor the last to do so. In any event, as many startups are sole proprietorship businesses, using a personal credit card as a source of funding is not so far from its intended purpose, especially as there’s no guarantee that any business idea will actually take off as hoped.
Business credit card funding
Bear in mind – as far as personal liability is concerned – any debt that accrues on a business credit card will still be your personal responsibility unless your business is incorporated, and you will need to sign a personal guarantee to this effect even when taking a business line of credit on new plastic. Even if a business is incorporated, the banks can ask that major shareholders sign as guarantors, meaning any one signatory can be held liable for all the company’s debts.
In light of this issue of personal liability for business debt, when you acquire a business credit card you need to check if you are able to exempt certain personal assets from the guarantee, and ask if there is a sliding scale whereby a smaller percentage of the loan will be guaranteed by you the longer the business operates, or as a certain net-worth threshold is passed. Make sure that everything is in writing, and that you thoroughly scrutinise the terms and conditions to locate any features you may not like.
Family & friends
If credit card funding is not an option, then you may have to turn to personal loans from investors, and the easiest place to look is amongst family and friends, although this may not be the easiest option as you move forward. This is the least businesslike footing for any source of financing, and problems in this area can lead to broken relationships very close to home. Then again, the less relatives you get on with, the less Christmas and birthday presents you’ll have to buy, and the more you can plough back into your business.
Giving individuals and small businesses informed choices when it comes to credit cards gives Timothy Ng a different kind of high. He regularly contributes personal finance articles to CreditCardFinder.com.au.
{ 5 comments }
The underwriting process for business credit cards has changed dramatically since the credit crisis hit. In fact, getting access to any type of business credit card can be incredibly challenging for many small businesses.
While not impossible, a small business start up getting access to business credit cards is very difficult these days. Also keep in mind, card issuers require that the name on the account is personally responsible for any debts that are accrued on the card.
Thanks for the info Steve
Thanks Mary for stopping by, hopefully the credit standards will become easier over time.
Getting capital with a credit card is very important. Such a way that could be a motivation for someone to quickly succeed in order to pay the installment in continuity. In contrast to borrow a friend or family. You are not racing.
Comments on this entry are closed.
{ 1 trackback }