According to the sixth annual survey of small and mid-sized businesses conducted by Arthur Andersen's Enterprise Group and National Small Business United (NSBU), a small-business advocacy organization, credit is king . . . at least for many of today's business owners, who have turned to their charge cards to generate business capital.
In a time when the use of traditional financing, such as commercial bank loans and private loans, has declined, more business owners are seeking alternative financing methods, such as credit cards, leasing agreements and home equity loans.
Between 1993 and 1997, reliance on commercial bank loans decreased 24 percent. In addition, during the same time period, reliance on private loans decreased 32 percent. Compare these figures with the growth of credit-card use--which has nearly doubled in the past five years--from 17.3 percent in 1993 to 33.5 percent in 1997.
But this new tendency for business owners to "charge now, pay later" can prove costly--both in hefty interest fees and financial overextension due to poor long-term budgeting.
"Relying on credit cards for financing creates a snowball effect of debt that could crash down hard on your business," says NSBU's Sharon Miller. "It may be easier to flash the plastic, but in the long run, working hard to find an alternative means of financing is prudent."