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Taking Charge

Should you finance your new business with plastic?

Opinions expressed by Entrepreneur contributors are their own.

Entrepreneur magazine, June 1999

Temptation. That's what credit cards represent to many Americans. So what happens when you try to start your business with that little piece of plastic? Many aspiring entrepreneurs have faced that very decision: whether to give in to quick financing or steel themselves against the siren song of VISA.

Debbie Mumm, 43, is one entrepreneur who entered the plastic jungle--and survived. Mumm's craft book design and publishing company, Mumm's The Word in Spokane, Washington, began with a booth at the 1986 International Quilt Market trade show. "I used my credit card to pay for my expenses, booth rental and prototypes," says Mumm. Because her start-up costs were less than $3,000, she didn't feel the need for a bank loan. "If you have something that has potential in the marketplace but don't have financial backing, there are creative ways [to use] your resources without risking your whole financial structure," says Mumm, who was able to pay off her credit-card debt within a few months. Her gamble paid off: In 1998, Mumm's The Word gained an exclusive licensing contract with Mervyn's department stores and earned $70 million in sales.

The credit-card start-up path was a bit bumpier for Doug Monahan, 42, founder of outsourced sales and marketing company Sunset Direct Inc. in Austin, Texas. His first attempt with a company called the Job Store resulted in a too-rapid expansion and five years of paying off his credit cards and getting his credit perfect again. A self-described glutton for punishment, he tried again in 1993. This time, his investment was solid--his new company, Sunset Direct, projects 1999 sales of $45 million.

Still, Monahan thinks successful credit-card financing is a million-to-one shot. Would he advise someone to do it? "No way! Uh-uh! Ten exclamation marks after that. No!" he says. Instead, he recommends using credit cards only as an auxiliary source of capital. Says Monahan, "Most people [who use credit cards only] are going to go bankrupt or spend years paying off their cards."

Contact Sources

Mumm's the Word, 1116 E. Westview Ct., Spokane, WA 99218-1384, http://www.debbiemumm.com

Sunset Direct Inc., http://www.sunsetdirect.com