When politicians talk about credit cards, they conjure up images of consumer purchases, and often, of consumer spending run amok. However, the facts that I see in my bankruptcy clients show that credit cards are increasingly used to finance small businesses.
Entrepreneurs use credit cards in two ways: one is to buy goods and services for the business or cash advances to make payroll. The second way is more subtle: the business owner uses his personal credit to support himself in lieu of the salary he isn’t getting from the new business.
Too little attention is paid to the impact on business plans of funding at credit card interest rates. My sense is that it takes a dynamite business operation to retire a business loan carrying interest at 18-24%. Yet small business types resort to their credit cards because that is often the only money available. It further seems to mandate that if the business fails, the entrepreneur is personally exposed.
