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Raising Capital: Credit Card Dos and Don'ts

An accountant warns entrepreneurs about using personal credit cards for a business quick fix.
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For cash-starved entrepreneurs, personal credit cards offer the prospect of a quick fix. Don't succumb to this all-too-costly temptation, though, until you've exhausted all other financing options, warns Sid Morgenbesser, a partner at M.R. Weiser & Co., LLP, a New York City accounting firm, because credit-card financing carries with it a number of risks as well as extra costs.

"Maybe you can't raise cash at the corporate level, but you might be able to refinance your home mortgage or qualify for a home-equity loan, which would provide you with extra capital," he suggests. "Or you might have life insurance you could borrow against or an IRA you could cash in." Even with a 10% penalty, that strategy would probably cost you much less than annual credit-card rates of 18% or so.

If indeed you have no other options, you should at the very least distinguish your corporate charges from your personal ones. Use different charge cards for each. "Your corporate charges may qualify for tax deductions on the interest and principal. But without good documentation and a clear separation from your personal purchases, that won't work." As soon as possible, look for ways to build a corporate credit history. One strategy: when you purchase office equipment or machinery, apply for a leasing arrangement or bank loan collateralized by your purchase.

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