SMALL-BUSINESS Credit Card Use on the Rise

You’re ready to launch your business. Your business plan is solid. You’ve done all of your homework. The only thing you need now is startup money. Business grants and venture capital have been difficult for black entrepreneurs to obtain, and lately lending institutions have been touting their credit cards as a financing option. But is this the best way to go?

Credit cards and lines of credit are becoming the method of choice for many small-business owners seeking to finance their operations. According to a report by the Office of Advocacy of the United States Small Business Administration, the number of small- business loans outstanding under $100,000 increased 25% between June 2004 and June 2005, the most recent years for which data is available. The growth in the category is made up primarily of credit cards, credit lines, or combined products, according to Chad Moutray, chief economist for the Office of Advocacy. Moutray says the use of business credit cards as financing is a result of banks aggressively promoting the products.
What are the benefits of using a business credit card? Tarik Smith, CEO of California Credit Card Solutions, which helps small business owners establish business credit, says using credit cards under your business name is a good way to establish your credit. But he adds that business owners must be responsible when using a business credit card. “Keep your balances low; that means below 30% of what your credit limit is,” says Smith. He cautions that in the end you are personally responsible for the debt of the credit card even if the card is in your business’ name.

But small businesses using credit cards should proceed with caution. Antonio Barnes, managing director of Barnes Capital Partners ( based in Atlanta, says business credit cards have higher interest than conventional bank loans. “With a bank loan, you are talking about prime or prime plus one on the rate. Credit card interest is double digit. And some of the cheaper rates on the corporate cards are 14% to 16% and can be as high as 28%,” he says.

So while credit cards can be a good way to finance your business, they should be used cautiously–for managing expenses, not capital funding. Gary Symington, president of Debt Free America, a San Diego-based company that helps consumers and small businesses pay off their debts, agrees. “You are going to start a business and you need capital to do that. You should not look to your credit cards for your capital,” he says. “Instead, the credit card should be used for items that are necessary for your business and you are certain will help your business make money so that the credit card can be paid off right away.”

Four Red Flags
There are certain things to look for to determine whether your credit card is hampering
you and your business. Heed these warning signs to avoid becoming overextended:
1, You are unaware of your bills. Know how much you owe and who you owe it to. One way you