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Thread: Financing your Start Up with Credit Cards

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    Default Financing your Start Up with Credit Cards

    We've all heard the stories about the big businesses that were started in someone's garage and kept afloat for the first few months with credit cards. I'm not sure that I would be comfortable with using credit cards as a method of financing a start-up. The thought of taking on all that debt just bothers me.

    I do know that people use credit cards to finance their startups, so I just wanted to ask how many of you would do or have done that. If you have done it, what was your experience? If you would do it, why would using credit cards be a better option than some other method?

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    I think it comes down to how much credit card debt you are taking on. If you plan on moving/ making a big purchase/ or anything that is credit based.

    I personally, wouldnt like putting it on a credit card because that could lock it up in a time where you might need that card. Leaving a CC free gives you the option to use it for other business expenses.

    Once your CC is tapped and you need more, where are you going to go?

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    I actually did finance my business by taking on credit card debt. I wouldn't necessarily recommend it, but when I started I didn't have any savings. I used credit cards for pretty much everything I could. Mostly typical life expense stuff like groceries.

    It's not for everyone, but years ago I had built up credit card debt out of necessity and knew once my business was bringing in revenue I'd be able to pay it off. I also have built up a good amount of credit over the years so I knew I could use the cards for years without running out of credit. At first the debt just grew. I paid the minimums, but was using the card for more each month. Then I reached a point where I didn't need to use the cards, though still couldn't pay more than the minimum so the debt held. Eventually I reached the point where I didn't need to use the cards and could pay down the debt.

    It can be scary and I wouldn't recommend going this route to everyone, but I was confident in myself and my business and knew I'd be able to pay back the cards in time. Maybe having been through the situation in the past made it easier for me.
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    Not to sound negative or disparaging to those that won't do this, but I think part of what makes an entrepreneur successful is that willingness to fly without a net. That includes quitting jobs, that includes using savings, that includes taking on debt.

    There are millions of people out there that would "like to" start a business and/or work from home. However, they say things like "but... right now, I have x and y, and my job is good..... maybe someday". That's all well and good, but those people will never start businesses. They want it to be safe and foolproof. They don't want risk. They may fool around with something part time someday, but that's about it. Business isn't "safe". There is no good time.

    I quit a good job and financed my first business on credit. I was 24 or 25. It failed, and I was left with maybe 10k in CC debt. I eventually paid it off, quit another job (or got fired... same thing) and started another business. That one didn't work either. Left with maybe 4k in CC debt. Paid it off, got fired again, used CC a little, and here I am, nine years later.

    I always knew I'd succeed. Knew without any doubt. Thus, taking on debt didn't bother me.

    I know I sound very black and white here, but I think that's what you need as an entrepreneur. Is one is adverse to risk, one should not work for themselves.
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    Dan I agree with you about having that confidence. Being in business for yourself and being an entrepreneur is as much a mindset as anything else. You do have to believe in yourself and know you're going to succeed even if it's not today.

    Also with risk you need to risk in order to gain a reward. Imagine you're gambling and you only bet a penny to win a penny. Sure you won't ever lose much, but you'll never win much either. Sometimes you have to take chances in order to succeed. You shouldn't take wild chances. You do want to put the odds in your favor as much as you can, but at some point you do need to have that leap of faith kind of thing.
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    I would like to know what the difference is between credit card debt and any other kind of debt. There seems to be a general acceptance that financing your business with a loan from a bank is different from using a credit card - even from the same bank!

    What is the difference?

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    Good question. I guess the difference is the bank loan probably comes with a lower interest rate than your credit card. Though your credit card is much more willing to give you a loan.
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    Frederick, you hit on one of the things that I was thinking about, which was debt is debt. Why would I take out a loan from the bank but not use my credit cards? Isn't it the same thing really?

    I'm not sure why I'm comfortable with the idea of one, but not with the idea of the other.

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    It's the stigma of credit cards. If you get a loan from the bank it's easy to see it as something positive for your business. The bank is willing to lend you money and so must think your business is a good risk. It's validation.

    With credit card debt there's no validation. We're taught that having a balance on your credit card is bad and so you see that debt as bad debt. Truth is both are debt. They have different interest rates and payment plans, but in both cases you borrow money against future revenue.
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    I think there is big difference between CC debt and loan debt.

    CC debt can linger for months even years. As long as you make the min payment, you can keep a CC balance forever. A loan is set and created in a way where you pay the loan off on a set date. Making it come to an end at a certain date and time. Which is why loans are better i my eyes, they have a predetermined end date, instead of the revolving CC end date.

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