Your Company’s Logistics Part 2: Credit Cards

Most articles, blogs, and financial advisers will tell you that unless you are trying to build you credit for a house purchase of some sort, you shouldn’t touch credit cards. In most instances this is of course a smart argument. One of those exceptions however, is when you are building you startup.

As I have mentioned before, when you first begin your startup process, runway is key. Unfortunately, if you are like most startups out there you have no access to capital to help build that runway. The reasons why are clear: as a startup (especially a tech startup), there isn’t very much to secure investments. Unlike mortgages and car loans, banks cannot simply repossess a URL.

This takes us back to credit cards. If you manage the process appropriately, they can be a Godsend. Let’s say you quit your job today. You are your founders have now evaluated that you have $20,000 in savings to spend on the business. If your burn is $3k per month (because you’re smart and not taking salaries in the beginning), you only have 7 months of viability. Inserting short-term financing in the mix can extend this to a year or longer — finally getting you to a point where you are either (1) generating revenue or (2) finding some initial investments. So how should you manage the process?

Pretty much focus on the same process as when you were first building your personal credit. You can look for two types of cards: (1) those with starter programs and (2) those that allow you to co-sign personally. Even if you are starting with some savings to get your company, I would still suggest this route as it extends your runway and can help build your company’s credit. If you are at the point where you are comparing company credit cards, I suggest NERDWALLET. It does a great job of comparing the different benefits. One thing to keep in mind: you will have a while before you need to really travel, so look for cards with the lowest interest rate — not awards like airline points. Remember, you are in the “Runway by any means necessary” phase.

My preference? The Chase Spark Card for Business. I unfortunately had the opportunity try out several different cards, and the Chase Spark Card was by far the easiest to setup and use. They also did not require me to cosign personally. As a result, the starting limit is much smaller, but after 6 months of paying on time, they steadily increase your spending limit.

FINAL NOTE OF CAUTION: There is a point where incorporating credit cards into the mix can change from a savvy investment to a terrible crutch. Remember, you are at the phase where you are trying to extend your company’s life long enough to prove viability and potentially bring in investment. So while you are relying on this form of payment, only do so knowing you can pay the monthly charges and be sure to stay frugal at this point in time. For example, salaries shouldn’t be put on your credit card. In short, make smart decisions!

(next: file systems)

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