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Starting A Business With Credit Card Debt

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Can You Start a Business if You Have Credit Card Debt? Yes, you can however, the size of the credit card debt is a key contributor to your credit score if you’re not keeping up with the repayments. If you miss monthly repayments, that action hurts your credit score. And a low credit score affects your qualification for new business loans.

We’re not bashing credit cards per se as they are useful, and many agree. There are some 485 million credit card accounts globally.

Let’s look at what really matters when you can start a business with credit card debt.

Size Matters If Repayments Not Met

It should go without saying, but there’s a stark difference between having a couple hundred bucks of credit card debt to pay down and staring down the barrel of several thousand dollars that need to be repaid.

Did you know the average credit card debt per household is $6,194? That average may not seem a lot, so let’s look at a much bigger number. Nationally, the USA has total card debt of $930 billion. That’s not total household debt, just credit card debt. It suggests a lot of people are not managing their finances well.

However, there is no golden rule to follow on credit card debt other than making sure you always pay the repayments, just like a home loan. If you have personal credit card debt that you’re struggling to pay down, work on that to improve your personal credit score and secure a business loan for your startup.

Using Personal Credit Cards For Business

How many startups use personal credit cards for their business?

The right way is to get a business credit card, and 7% of startups do this successfully. However, 13% of startups use personal credit cards.

Generally speaking, it’s handy to have a credit card with a manageable limit in place when starting a business to cover certain startup costs, especially when cash flow is tight. However, for your personal credit score, get a business credit card to shield your personal finances from your business’s commercial transactions.

Credit Score Is Everything

You will likely be precluded from business loans if you have a low credit score. It’s a measure of your trustworthiness as a prospective customer for a lender, and a low score might preclude you from many of the best borrowing options.

Your credit score is key to securing loans, whether for personal or business purposes.

As mentioned earlier, a large credit card debt will dent your score, but only if you don’t make regular repayments. There’s nothing fundamentally wrong with having a sizable credit limit, as long as you pay it down and never skip a month.

Putting in lots of credit card applications can also hurt your credit score.

So how does applying for a credit card affect score levels? Lenders will be suspicious if you’ve got too many hard credit checks in quick succession, which will signify financial instability or irresponsibility.

All sorts of factors are considered when loan approval is granted or denied. But taking steps to improve your credit score by keeping up with repayments and reducing your credit card debt is sensible.

Other Funding Options

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If you’re not comfortable with applying for a business loan due to your personal credit card debt and irregular repayments denting your credit score, consider other funding options, including family and friends if you dare to ask them.

Avoid family and friends

When you’re told to never lend money to family or friends, there’s an excellent reason for it according to Forbes, there are 6 reasons, including you’ll never be paid back!

Therefore avoid family and friends and consider other funding options like

  • Crowdfunding
  • Angel investors
  • Share offering
  • Grants

Crowdfunding is large groups of people putting in small amounts of money – that collectively reach your desired total.  This is not a loan; with crowdfunding, it’s a gift to make your business dream a reality. This typically involves pre-selling products or services to get people on board and can help build a customer base before you’ve even got anything tangible to offer.

You could also court angel investors who want to put money into hot startups at the crucible of their creation or venture capital firms with similar aims. Of course, you’ll relinquish a degree of ownership and control in your company, but your credit card debt might not be as relevant in this context.

A share offering is also a good way to raise capital for investment in your startup. The new shareholder will need transparency and may want a say in how you operate your business.

Grants are offered by philanthropists, Governments, or companies. The money is free, but you need to meet particular requirements, which can take some time.

Most funding options will require you to present:

Money Management

Learning how to manage money before you start a business makes sense. It’s worth remembering that 38 percent of startups fail because they run out of cash. This points to the unavoidably precarious position many small firms find themselves in during their early weeks, months, and years of operation.

If you have got yourself into debt of any kind, whether with a credit card or a personal loan, not only will it be harder for you to get capital to keep your company afloat, it might not be a wise move in the first place.

Business leaders need to be responsible with money; until you’ve proven this in your life, entrepreneurship might not be the right road to go down.
That said, if you can pull yourself out of credit card debt and enter a period of stability, you’ll have proven that you’ve got what it takes to act responsibly. In turn, starting a business will be a great next move.

Summing Up

The first thing to remember when considering finance for a startup is to check your credit score and current debt levels.

To get a business loan, you must have a solid credit score before qualifying.

Any outstanding debt, including credit card debt, will significantly affect your chances of getting a business loan and more so if you’re not keeping up with repayments. However, there are other ways to raise funds, so you can start a business with a credit card and other debt.

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