Financing Startups

I have a problem with an otherwise good article that calls credit cards a “great way” to finance a startup. No. You’re using high-interest funds on speculation. It’s the entrepreneur’s version of the same process by which problem gamblers have their legs broken by loansharks. Yes, fine, you’re sure it’s a sound business venture. So is the problem gambler with a tip on a horse in the fourth.

What’s worse is that the banking system supports this thinking (and why wouldn’t they?). In the past, I’ve approached a bank for a small operating line and been handed a credit card application by a teller who said I didn’t need to see a business banking representative. In response to my protest, I was told that this was how they handled anything under $50,000.

To be fair, the article rightly warns that mismanaging the credit card debt could mean you can’t get financing elsewhere… including the other sources it lists.

So with all that said, if you’re going to start a business using credit card capital, I’m not going to stop you. There are plenty of success stories from companies that started in just this way. Know however that there are also plenty of stories that don’t have such good endings… but it is of course a fairly common method. And if you’re going to do it anyway, just don’t ever call it wise, or suggest it’s a “great way” to finance a startup. It simply isn’t.