Aug 10, 2009
Credit card debt is not only a problem for individual consumers, but for small businesses as well. A study conducted by the Ewing Marion Kauffman Foundation revealed that having credit card debts reduce a new business’s capability to survive over the short term. Research indicates that during the first years of operation, these new businesses experience an increase in their debt before it stabilizes.
But why would new businesses use credit cards to finance business expenses? According to Robert Litan, the vice president for research and policy at the research firm, “Small businesses’ access to formal credit market historically has been limited, a situation that has been exacerbated with the recent contraction of credit markets”.
Over a half of new companies now rely on unsecured debt for their needs because of its ready access. It is also a lot easier to get than traditional business loans. Common sense tells us that the high interests charged by the bank makes it difficult for a start-up to repay significant debt loads in a short timeframe. That’s the reason why programs like business loans, auto loans, and other traditional loans exist in the market. They have lower interest rates suitable for the intended purpose.
Before you give up on your new venture or unmanageable credit card debts, here are some tips that can help you:
Improve Your Cash Flow – cash flow is a problem most new businesses face due to insufficient capital, slow-paying clients, and improper money management. Address by loophole that is holding up collection to get cash for repayment purposes.
Aim to Pay More than Just the Minimum – paying just the minimum required is ill-advised. Unless there is no other option, consider paying above the minimum each month to lessen your debt.
Avoid Credit Card Debts – this is the most practical advice this blog has probably given. To avoid the credit card trap, be sure to avoid additional debt if you know you can’t repay it on time.
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