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Small Business Credit Cards are NOT Startup Capital

There is a lot of business folklore about small businesses, startups, entrepreneurs, etc with no money getting a small business credit card and using it to finance their business. The story generally goes like this:

  1. Small business / startup owner gets one credit card and maxes it out to buy products, inventory, servers, etc
  2. As it comes time to pay that small business credit card off, savvy entrepreneur gets a 0% balance transfer offer and so rolls over the balance from card 1 to card 2 and racks up more charges in the interim
  3. Depending on the dramatic effect the storyteller is going for, the small business repeats this again and again and ultimately ends up with somewhere between 7 and 10 cards and tens of thousands of dollars of debt
  4. Ultimately, lightning strikes and they become wildly successful and have a nice chuckle about how they were on the verge of bankruptcy and used credit cards and ultimately made it

This is a great story. It makes us feel good to hear such tales.

These are also terrible examples to follow. For every entrepreneur whose story ends with great success, there are many more that haven’t done well using credit cards. By not doing well, it may mean a non-successful business and a pile of debt or at an extreme, ending in bankruptcy.

Small business credit cards are not intended to be used this way. The credit card companies, the good ones at least, don’t want you to be using their credit cards this way. They don’t want to take “equity risk” in your company without “equity upside”. As their name implies, they are credit card companies, not equity card companies.

And you as a small business, startup entrepreneur should not do this either despite the potential chance of going down in business lore as a swashbuckling, risk-taking do anything sort of guy or gal. Small business credit cards are generally expensive forms of debt and so you should use them with caution. You are almost always personally liable and so they can be hazardous to your financial health and your dreams if not used properly.

So now you know how you should not use your small business credit card. The logical next question is what is a small business credit card good for?