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Business Start-Up Finance Using Credit Card Debt

Business finance always costs. If you finance against equity in your home, you'll no doubt get a cheaper interest rate. But if it's only short term, how much will you pay in fees? And if it turns into a longer term debt, how much does it cost you in the end ? And at what risk ?

Angel investor ? Equity partner ? What's the cost in terms of loss of control and long term sacrifice of profit ? And is all the effort of setting this up worth it for a very small business?

Bank loan ? Good luck with that unless you've got some history or equity. Finance company loan ? Check out the fees. (Assuming you can still find a finance company).

The point is, that whilst you might be able to get finance at an apparently cheaper interest rate, with a credit card debt you get total flexibility, the charges are not to bad in New Zealand, and you can pay it off as quick as you like. You can still claim the interest as a business expense. Best of all, at the moment there are heaps of 'transfer your balance offers' around. This allows you to buy your piece of equipment or take your start up loan from the credit card, then flick it over to an interest rate that is comparable to a home loan rate, or even better, for 6 months or more.

So, let's take an example, somebody wants to start a desk top printing business. They're going to do it part time to start with whilst they build up some customers and find out if it's a goer or not. They need about $7,000 to purchase a sufficiently flash printer to be of some value to customers. Rather than fussing about trying to find a loan, wasting time and then ending up with a lot of hidden costs, why not just put it on a credit card, flick the balance for 6 months to another one, and then concentrate on building up some customers.

If the business takes off, it'll be successful regardless of how you got the money. More important will be whether you're offering the market something it wants, and providing good value. How good your marketing and quality is, etc, etc. If you really believe you can make the business fly, then get the money to make it happen anyway you can.

Unsecured credit card debt is probably one of the smartest ways to kick start a good idea in my opinion. The crucial thing is not to run up thousands of dollars on credit cards on consumer spending that's beyond your income. That's where credit card debt becomes a problem. As a business finance tool it's flexible, it's unsecured, and it's not too difficult to get.

I often now say to people looking for less than $10,000 in a start up situation - 'Just stick it on a credit card and give it a go. If the business takes off and you need further facilities, then get in touch and we can look at further options.'