Credit and small business

It's that good old entrepreneurial spirit that drives many of us to reach into our trove of credit cards to finance business dreams. Newspaper stories abound on the subject: the low-cost independent film that was only produced because the director/screenwriter/actor maxed out his credit cards and the garage-based inventor who sold his masterly machine prototype just in time to stagger out from beneath his massive credit card burden.

But why didn't these heroes take out a low interest business loan instead of piling debt onto their cards? For one, it's much easier to pay with plastic than plead one's case before a loan officer. The credit card bill becomes a bookkeeping record as well. Without a track record of business success, obtaining a small business loan at an attractive rate can be difficult. Moreover, some entrepreneurs choose the personal credit card route because they realize that many business loans require collateral. While they'll risk their time and reputation pursuing their dreams, they don't want to gamble with their home.

If you're going to use credit cards to finance a business, it's a good idea to build up your lines of credit before quitting your steady employment. Self-employment alone can cause some creditors to flag a credit application because an estimated 20 percent of bankruptcies are filed by failed small businessmen. You should always set a limit on the personal credit you will use to help finance a small business. Going beyond that limit may cause you to lose control of debt and, ultimately, your business. In business and personal financial matters, good credit is one of your most valuable allies. Use it wisely in all situations.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.