Kauffman Study on Small Business Credit Card Debt

August 17, 2009 at 10:56 am | Posted in Uncategorized | Leave a comment

“Credit card debt reduces the likelihood that a new business will survive its first three years of operation, according to findings froma new study released by the E.M. Kauffman Foundation. That study suggests that, during many firms’ first few years of operation, their credit card debt increases and then eventually stabilizes to manageable levels, while firms with high credit card debt close, and successful firms start paying off their debt.”

Another reason to NOT go into credit card debt in order to start a business, especially credit cards with interest rates higher than commercial banking rates. Based on my experience working with clients at the Small Business Development Center, I also believe that because credit card funds are easier to access, borrowers don’t always do the necessary due diligence and business planning before they start their business. Whereas, if the borrower was working with a traditional lender they are more likely to go through a more rigorous business planning and credit underwriting process that ensures that only viable projects get funded in the first place. 

This is why it’s important to put together a business plan and cashflow projections and crunch your numbers under differing scenarios before you start your business–an SBDC counselor will help you do all this to objectively assess the merits of your project, before you even speak to a banker!

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