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Bootstrapping: Using The Plastic Potential

Aug 18, 2007
Though some might urge staying away from credit card debt, Eric Rosenfeld, president of Adaptive Consulting Partners LLC, insists they may be the best tool for bootstrap entrepreneurs.

Here are Eric's suggestions for keeping that debt manageable and putting plastic to its best use in starting your company:
- Think Installment Debt. In using credit cards, I treated the debt as an installment loan with fixed payback terms, rather than as an open-ended loan from family or friends. I made it my business to repay card debt in a lump sum pegged to cash flow. Specifically, I wouldn't borrow any more than what I knew could be repaid within a ninety days, based on projected receipts. Credit-card companies usually bill after a thirty-day grace period, allowing two weeks for payment to arrive. Since I was on top of the amount of cash coming into ACP over the forthcoming sixty days, I always knew that, at most, I'd be out sixty days.

- Shop Around. Not one to look a gift horse in the mouth, I took advantage of the lenders' penchant for offering some of the best gift horses around: credit cards with permanent rates as low as 9 percent and introductory offers that sometimes dipped below 4 percent. Throughout my first year and a half, I moved my balance from card to card three times, each time securing a lower rate.

- Be Frugal. Frugality also enabled me to use credit cards as my business financing tool. With payments for equipment, rent, advertising, attorney's services, and the like going directly onto the plastic and appearing on the following month's statement, I had an incentive for weighing every purchase.

Also, more than one bootstrapper has started in business with nothing more than a credit card, but financing a start-up with debt must be done carefully and thoughtfully.

Partners Bill Dayton, Phil Cooper, and Larry Lee started Encore Productions in 1988 to serve a burgeoning audiovisual market for conventions and other large gatherings entirely on credit cards.

With steady jobs at the Tropicana Hotel and Casino in Las Vegas they took full advantage of their credit worthy status at the height of the credit card boom and managed to secure $500,000 in credit lines between them to start and operate their business.

From the beginning they paid the cards off fast to avoid interest charges. Here are other important tips for using credit to start your business:

- Keep business and personal cards separate
Don't use your personal cards to pay for business expenses or you will put your personal credit at risk
- Resist the allure - don't get too many credit cards
Limiting yourself to one or two cards for your business makes tracking spending easier
- Know your credit history
Making sure your credit report is correct and up-to-date could make the difference not only in whether you get the card or not but at what rate.

Entrepreneur Dennis Ngin and two business partners launched their business One Greek Store in Gainesville, Florida, using credit to buy equipment and set up their on line store. In a comment on a previous post, "I used a credit card to jump start my business. It has helped us out immensely. However, we do closely monitor and manage all of our credit card expenditures."
About the Author
The author writes about Bootstrap and blogs at http://www.bootstrapme.com/.
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