Should I use loans or credit cards to fund my startup?
I'm almost a college graduate and am getting ready to open a coffee shop in my hometown, which only has a few coffee shops and all are overflowing. With the amount of student loans I have to pay back soon, I doubt any banks will give me a small business loan. With that being said, do you think it is wise to get a $10,000 credit card and equipment financing to open a 1,750 square foot coffee shop?
Whenever you borrow money to start a business, you're taking a risk. The advantage to using a credit card is that you get access to capital now--no business plan or collateral required. The disadvantage is that credit card interest rates are typically higher than interest on traditional bank loans and credit lines and, if your business takes a while to ramp up, you could get stuck with some hefty monthly payments. My advice is to raise the startup capital you need from friends and relatives and wait until your business is cash flow positive before taking on debt.
Many entrepreneurs want to go directly to the source the moment an idea strikes or at the first sign of growth, but you need to first prove the business to yourself before asking others to believe in it.