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Where Credit is Due:
Easy Financing for Your Home Business
by Donna Schwartz
Mills, The ParentPreneur Club
Financing is often the biggest obstacle
faced by people planning a home business. Initial expenses like
setting up a home office, buying equipment and advertising all
require money -- which, for the typical small start-up, can
be in limited supply.
The Small Business
Administration reports that most home businesses are capitalized
with an investment of $5,000 or less. While banks are willing
to lend great sums of money for major ventures with bang-up
business plans, it is difficult for the typical solo entrepreneur
to obtain a business loan.
Although banks have no means of reporting how many micro businesses
are financed with personal assets and credit, the SBA recognizes
that for many, this is the case. The only statistic I was able
to find on this issue came from the National Foundation of Women
Business Owners, who reported that more than half the members
they surveyed in 1992 used credit cards to finance their ventures.
While I don't recommend plastic as your first choice in obtaining
business financing, there are times when it can make sense in
the short-term.
The reasons are many:
No long application process - There is nothing
easier than using an existing card or taking a lender up on
an offer for a new card
Protection against theft and defective merchandise -
If your card is lost or stolen, the most you'll ever owe is
$50, even if you don't report losing the card. If merchandise
you receive turns out to be defective, you may be legally entitled
to refuse to pay. (The item must cost more than $50 and the
purchase must be made within 100 miles of your mailing address.)
The ability to use the "float" - Depending upon
when you make your purchases, you could have up to 45 days to
pay.
Added value - Some cards offer programs that
give you points towards merchandise, travel or automobiles.
Some even offer cash rebates. Others include extras like extended
warranties on purchases, collision insurance on rentals and
travel insurance on airline tickets.
Note: You can quickly accrue points by
charging items you usually purchase on a cash basis (like
gasoline). Just be sure to pay these charges in full each
month.
Convenience - With a credit card, you can make
almost any purchase quickly, without offering payment up front.
This is especially true when making travel arrangements. For
instance, when a guest indicates he or she will be paying in
cash, hotels typically require payment in advance for the entire
stay; while nothing is taken out of pocket when guaranteeing
with a credit card -- you are not liable for the charges until
the bill arrives.
Note: When making a reservation at a
hotel, be sure to use an actual credit card for a guarantee
instead of an ATM card. Your bank will treat the charge as
cash out of your account, which could deplete your resources
pretty quickly.
Record Keeping Ease -- Dedicating one card
for your business makes it a snap to track your expenses.
Of course, there are dangers to using credit cards indiscriminately.
Aside from the high interest rates and annual fees, many credit
card companies are getting creative with extra consumer fees.
Consumers must also be aware of the big picture: Too many lines
of credit -- even empty ones -- can be just as harmful to your
credit rating as owing too much.
Make sure all payments are made on time, especially if you're
using a card with a low teaser rate. One late payment could
trigger a rate increase of 10% or more.
The Internet has some excellent sources to help you better
manage your personal credit:
Credit
Information Center: Information on how to repair credit,
choose the best credit cards, decode credit reports and more.
Free
Credit Analyzer: Calculate your credit-worthiness without
submitting inquiries to a credit bureau.
The Fannie Mae Foundation: This organization's mission is to
help make home ownership affordable to as many Americans as
possible -- they do an excellent job of educating consumers
on how to make their credit history palatable to a mortgage
lender.
When used responsibly, your credit cards can be a tool to help
you stretch the dollars you have on hand, and keep your business
operating smoothly.
Donna Schwartz Mills
is the Editor/Webmaster of the
ParentPreneur Club , "where
those who are doing the most important job of all hang their
hats." She can be reached at donna@parentpreneurclub.com.
Copyright 2002
by Donna Schwartz Mills.
Reproduction without permission prohibited.
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