Tapping Into the"Credit Card Fund"

Most entrepreneurs can tell you how challenging it is to find the funds to start a company. Some brave business owners turn to credit cards as an interim funding solution. We asked several women with successful businesses why they turned to credit cards, how they used them and what impact that had on their company.

"We had no concerns about using credit cards," admits Rachel Coleman who co-founded Two Little Hands Productions with her sister Emilie Brown. "The credit cards gave us freedom to move our project forward. We were also free to pay them off immediately, when possible, or pay off expenses bit by bit. It gave us flexibility."

Coleman's initial project, an instructional video on sign language for children called "Signing Time!" that she also hosted, took a year to complete. Over that time period, she and Emilie divided up expenses as they came up and each used personal credit cards that they already possessed.

"My sister Emilie and I have always had great credit," Coleman explains, adding that they never maxed out their cards. "We used them as needed and paid them off as quickly as possible. We paid them off within the first year of releasing the first video in the Signing Time series."

Much of their $25,000 expenses were travel-related. Brown and her son Alex lived in Virginia. Coleman and her daughter Leah lived in California. Production for the videos took place in Utah.

Says Coleman, "The credit cards allowed us to pay for our expenses and earn points toward future travel. The credit cards also gave us access to startup capital without us having to convince a third party that what we were working on was 'worth' their risk or approval. We were able to create our product and prove its success before we ever needed to find additional funds."

Coleman says she wouldn't change anything about the way she initially financed her business.

"I am not sure how far we would have gotten if I had walked into a bank and said, 'My daughter is deaf and I think I have a really great idea. I want to make a sign language video to teach other kids how to sign with her! Of course it will star me, my deaf daughter Leah and my nephew Alex. I'll write all of the songs and sing them and sign them. What do you think?' They probably would have smiled and said, 'How nice. NEXT!!'"

Coleman's company has since released thirteen award-winning Signing Time videos and DVDs for children and infants as well as a series of hardcover books and flash cards. A "Signing Time!" television series airs on PBS stations across the country.

Karen Waisath, co-founder of Gold Canyon Candles, first approached her family to raise an initial $100,000 to start up her candle business. She also obtained a small line of credit from a bank for $5001.

When she needed more money after maxing out every credit card she already had at the time, she went to the mailbox every day, hoping to receive a pre-approved application.

Says Waisath, "I did not solicit credit cards from financial institutions. The coup for me was when I received an application with a pre-approved line of $35,000. I completed the application and sent it in the very day it came in the mail."

Waisath went through $80,000 in six months.

"The funds were used to pay vendors," explains Waisath. "I used the checks from the credit card accounts. These went toward the creation of the catalog, payments to the glass vendor (many Gold Canyon candles are poured into apothecary-style glass containers) and even to pay rent for the building we were using."

She also took advantage of 0% offers and transferred balances to the latest 0% introductory APR card to delay interest payments. As soon as Gold Canyon had enough cash, she paid down every card as quickly as possible.

"Getting into such a financial commitment could have been a nightmare if not managed properly," Waisath admits. "Fortunately in the case of Gold Canyon, I spent money with the greatest care. I love to negotiate and I pushed for great rates with our vendors. I did not splurge on anything and all of the earnings went back to paying off the credit cards immediately instead of using earnings for personal benefit."

Waisath says that if she had known about other financing options sooner, she would have explored those before going to credit cards. Her advice to other entrepreneurs is not to use credit cards unless absolutely necessary.

"They should be a last resort. Treat cards as if they are a loan from a bank and manage the payments carefully."

Coleman's advice regarding credit cards and business is to make sure you have a realistic plan for paying off the cards.

"Use a credit card that allows you to earn points toward something that will impact you and save you money now." While there are many financing options for businesses at various stages, credit cards continue to be an option. Bottom line: Be smart about your cards and take the debt seriously. Paying off the cards not only helps your credit rating, it can also better position your company when you approach other financial institutions or business investors to help you grow your business.