Taking Charge Should you finance your new business with plastic?

By Amanda C. Kooser

Opinions expressed by Entrepreneur contributors are their own.

Entrepreneur magazine, June 1999

Temptation. That's what credit cards represent to manyAmericans. So what happens when you try to start your business withthat little piece of plastic? Many aspiring entrepreneurs havefaced that very decision: whether to give in to quick financing orsteel themselves against the siren song of VISA.

Debbie Mumm, 43, is one entrepreneur who entered the plasticjungle--and survived. Mumm's craft book design and publishingcompany, Mumm's The Word in Spokane, Washington, began with abooth at the 1986 International Quilt Market trade show. "Iused my credit card to pay for my expenses, booth rental andprototypes," says Mumm. Because her start-up costs were lessthan $3,000, she didn't feel the need for a bank loan. "Ifyou have something that has potential in the marketplace butdon't have financial backing, there are creative ways [to use]your resources without risking your whole financialstructure," says Mumm, who was able to pay off her credit-carddebt within a few months. Her gamble paid off: In 1998, Mumm'sThe Word gained an exclusive licensing contract with Mervyn'sdepartment stores and earned $70 million in sales.

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

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

Contact Sources

Mumm's the Word, 1116 E. Westview Ct., Spokane, WA99218-1384, http://www.debbiemumm.com

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

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