How One Woman Used Credit Cards to Start A Business (Without Drowning in Debt)

How One Woman Used Credit Cards to Start A Business (Without Drowning in Debt)

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Without credit cards, Lisa Chu’s business may have never gotten off the ground. Chu is the founder of Black N Bianco, which sells affordable, quality-made children’s formalwear.

“I had very little capital when I started my business and banks were not willing to give me a loan due to my mediocre credit score,” says Chu. But her credit card issuers were willing to increase her credit limits. She used them to purchase inventory and buy supplies such as fabrics, trim and laces. She also needed to cover shipping costs. Chu used business credit cards, and in addition to the working capital they provided, she also earned rewards, including airline miles and cash back. “Being a brand-new business these credit card perks were extremely useful,” she says.

Before turning to credit cards for funding, Chu unsuccessfully applied for bank loans but soon learned, like many entrepreneurs, that it is hard to get a bank loan when your business is a startup. She also considered online lenders but she says the interest rates quoted “were outrageous.”

The interest rates on her credit cards weren’t as low as bank loans, but they were better than the other loans she was offered. So she forged ahead, and did everything she could to make her business a success. “I had to take a calculated risk because I had no other options for my business,” she says.

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It paid off. Her fashionable designs for boys’ tuxedos and flower girl dresses at affordable price points brought in customers, and her business took off. She was able to pay off her credit card debt the second year in business. She continues to use business credit cards to pay for most business purchases because of the rewards and perks she earns.

When asked what advice she would give other business owners thinking about using credit cards to fund her business, she says:

“Look over the terms and interest rate very carefully. Understand the risk and do whatever you can to pay back the interest as soon as possible. Nothing is worse for a brand-new business than digging a huge hole of debt.”

How to Replicate Lise’s Success

Before you pull out plastic to get your business off the ground, remember these tips:

  1. Consider business credit cards over personal cards. Debt on personal credit cards can affect your personal credit scores, making it more difficult to qualify for other types of funding. Most business cards don’t appear on the owner’s personal credit cards unless they fail to pay them back. (This chart explains which major business credit cards appear on personal credit.) Most business card issuers will use the owner’s personal credit scores when evaluating these applications, which means they can help fund startups. (You can check your personal and business credit scores for free at Nav.)
  1. Minimize interest costs. Keep in mind that if you carry a balance on your credit card, any new purchases will incur interest immediately. You may want to use your card with the lowest rate for times you’ll carry a balance, and another one for day-to-day purchases then pay it off in full. You may also be able to use a low-rate balance transfer to keep costs down.
  1. Pay on time. Make sure you at least pay the minimum payment on time each month. Not only can late payments affect your business credit, but your card issuers may lower your credit limit or even close your account if you start falling behind. And unlike personal credit cards, business credit card issuers may raise the rate on existing balances.
  1. Evaluate your options. Funding options for start ups can be limited, making credit cards a popular choice with entrepreneurs. Microloans are another option to consider. While loan amounts tend to be smaller, they may provide just enough funding to get a business off the ground.

Photo courtesy of Lisa Chu

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