Many business owners find it tough to get their startup off the ground without some type of financing. This is as true of a graphic design startup as with any other business. You will need specialized printers, stocks of paper, high-quality computers and monitors, a leased location and an advertising budget.

At Alamo Associates, we are often asked by business owners if it is best to use credit cards to get their startup moving in its early stages. In short, the answer is that this is a bad practice if you plan on carrying a balance. Let’s provide some more details on why to avoid credit cards as a source of financing your graphic design startup.

Why Avoid Using Consumer Credit Cards

Many business owners just starting out use their own consumer credit cards to finance their startup. This is because they have not yet developed any business credit.

With the average credit card interest rate at around 17 percent, many consumers are stuck only being able to pay the interest each month. They never really get to pay down the balance. Constantly servicing high-interest payments will stifle your startup’s cash flow.

Also, if you miss payments or default on your consumer credit cards, your personal credit score will suffer, and you could end up having other wages garnished for business debt.

Why Business Credit Cards Are Not Much Better

According to Forbes Magazine, most of the business credit cards contain a personal liability clause. This stipulates that you will be personally liable for failure to pay off the business credit card debt. Thus, failure to pay can still harm your personal credit. This clause works in favor of the credit card issuer, regardless of your business type, so your incorporated status will not save you.

According to Inc. Magazine, the interest rates on business credit cards are around the same as the consumer cards, just a percent or two lower. So, business credit cards that have a balance carried from month to month will saddle your company with high-interest payments to service.

How Can Credit Cards Responsibly Be Used to Help a Startup?

If you have a new client or a large order and need more supplies, if you can put the requisition for supplies on the credit card and then pay it off as soon as your client pays for your services, you will have incurred little to no debt while improving your bottom line.

Other Options to High-Interest Credit Cards

Zero-Interest Balance Transfer Cards

If you have good credit, you will likely qualify for a zero-percent, balance transfer credit card. It will allow you to move any balances from other credit cards over to a card with no interest for 12 to 18 months. This is good if you only need credit for the first year or so of your new enterprise. Most small business funding experts suggest that a startup cease borrowing money after the first year of operation in order to ensure adequate cash flow.

Personal Loan

You can also secure a personal loan with a lower interest rate and lower monthly payments. This will help free up cash flow. Often, such personal loans have terms of repayment that can last a few years.

Alamo Associates reminds business owners that servicing high-interest credit card balances can stifle a startup’s growth. If you are interested in making one payment each month on your business debt at a lower interest rate, call us for solutions