Did you know that Google was initially financed using credit cards? We look at the pros and cons of using credit cards as venture capital.
Budding entrepreneurs often struggle to find that initial bundle of cash to get their business off the ground. Some raise funds from friends and family, others seek venture capital, but more and more are turning to business credit cards as a creative (and sometimes risky) funding alternative.
It’s difficult to say whether funding your business venture with a credit card is brave, clever or stupid. It really depends on your circumstances and the particular card you obtain. Credit cards have a number of advantages over more traditional sources of funding: they are easy to obtain, they provide generous amounts of credit and they often come with bonuses such as introductory interest rates – critical for the first few months of a business.
The disadvantages are obvious – credit cards usually have a much higher interest rate than other sources of finance, such as a business loan. Often, you’re also personally responsible for the debt (even if you’re operating as an incorporated entity), so you may be risking assets such as your home or car.
The idea of using a credit card to finance a start-up is not without precedent. It is rumoured Google was financed by credit cards to purchase the necessary computer equipment. Filmmaker Kevin Smith funded ‘Clerks’ using several credit cards and UK entrepreneur James Caan (a judge on the television show Dragon’s Den) financed his first business using credit cards.
