Over at Small Biz Numbers I stumbled on a good BusinessWeek article about startup businesses using credit cards to finance their businesses in the early days. It points out the growth in business credit cards in recent years:
While data on small business borrowing is scattered, indications show that entrepreneurs are increasingly relying on credit cards to finance their businesses, especially early-stage companies. The percentage of firms using credit cards has jumped from 16% in 1993 to 44% today, according to surveys by the National Small Business Association, a trade group. In the same period, the proportion using bank loans dropped from 45% to 28%. A Federal Reserve survey showed that the percentage of firms using business credit cards jumped from 34% in 1998 to 48% in 2003. And numbers from the NSBA and the Fed show that between 20% and 30% of all small businesses carry a revolving credit-card balance, rather than paying their bills in full each month.
It’s the dirty little secret of small business here in the United States: many of us use plastic to finance our businesses until they get to a certain size. Credit cards are easy, convenient and sometimes the only credit option available. Credit cards do not require collateral, so startups and very small businesses, especially service businesses, can more easily qualify than they could for a loan. While there’s a lot of talk about Small Business Administration (SBA) loans, the reality is that few startups get them.
Last year I wrote an article over at the Online Merchant Network about how to choose a business credit card (so you don’t have to rely on a personal credit card).