Making 0% cards work for your small business
If your mailbox is filling up with 0-percent-interest credit
card offers, they could be a good source of small-business financing. But you
have to use these balance-transfer deals strategically, say experts, or you
could run into trouble.
"They can be very beneficial for folks who have seasonal lulls
in their business, but can be dangerous if there is no set plan for
repayment," says bankruptcy
attorney Michael J. Gunderson at The Gunderson Law Firm in Chicago.
"Often I see people get pulled in by these offers and [they] aren't prepared to
make the new minimum payments."
While banks are beginning to lend more to small firms than they
did during the recession, it can still be difficult to get very small loans,
which require a lot of paperwork for banks, relative to the revenue they
generate for the institutions. The National Small Business Association, a
nonpartisan advocacy group in Washington, D.C., found in its year-end report in
December 2013 that 33 percent of business owners surveyed had used credit card financing in the previous year.
Many owners were paying rates well above 0-percent interest for
their credit-card debt, according to the NSBA's research. The average interest rate
among respondents was 13.74 percent. Zero-percent deals for balance transfers
and new purchases -- which have made a bit of a comeback after tapering off in
the recession -- can lower the cost of small-business financing, but if you
don't keep track of when these offers expire, you can run into trouble.
"They call them 'teaser' rates for a reason," says Gunderson.
"People are lulled into a false sense of safety with no-interest payments, only
to have a shock when the rates are put into place. Cards give people these
rates to encourage large purchases, which, if not paid off in full before the
expiration, mean significant interest payments."
That said, many entrepreneurs have succeeded in building
thriving businesses using 0-percent credit cards, which are generally available
only to those with great credit. Here are some tips from entrepreneurs who have
used these cards successfully to finance a small business.
Secure as many no-interest
cards as you can
If your startup requires a substantial amount of cash, you may need more
than one card. When Vladimir Gendelman started Company Folders in 2003 after
losing his job, he says, "I got as many as I could." Ultimately, he ended up
with $50,000 in available credit. Because he had recently become unemployed -- a
red flag for card issuers -- he was quick to apply before his unemployment
To avoid getting in over his head, Gendelman -- whose firm
sells products such as paper folders decorated with clients' logos from its
headquarters in Keego Harbor, Mich., near Detroit -- created a spreadsheet to
keep track of payment deadlines. "It's easy to lose control and forget to pay
something," he explains.
If you do pay your credit card bills on time, this will
likely lead to more offers from issuers. "As you successfully make payments and
don't delay anything, they want to give you more," says Gendelman. As he
reached the 10th or 11th month of a 12-month, 0-percent-interest
deal, he would secure a new 0-interest card and transfer the balance to that
Financing his business this way gave him the runway he
needed to establish it successfully. Today, he says, Company Folders brings in
about $2 million in annual revenue.
They call them 'teaser' rates for a reason. People are lulled into a false sense of safety with no-interest payments, only
to have a shock when the rates are put into place.
|-- Michael J. Gunderson
The Gunderson Law Firm
Reap rewards you can reinvest
There's no point using your finite pool of startup cash for a business expense
if you can instead finance the purchase with a no-interest credit card. Save
your cash for times when you have no other payment options, advise
entrepreneurs who have gone this route.
After she was laid off from an internal marketing position
at Hewlett-Packard in 2012, Wanda Anglin, a resident of Katy, Texas, used the 0-percent
interest credit card deals piling up in her mailbox to finance startup costs at
her firm SEOBuzz, which does search engine optimization. Anglin used a deal
from Chase Ink to cover the $13,000 it took to set herself up with things such
as a computer and smartphone and a rented post office box. Anglin, who secured
the card in June 2012, says she paid off the entire debt by July 2013 -- when
the deal expired. Meanwhile, she received cash-back rewards, which she used to
cover other expenses. This year, she says she is on track to match her former
income from HP at the
Don't pay your debt
Billy Thompson, president of The William Thompson Co., had to find a way to
finance substantial startup costs when he launched a business in 2010 to sell
an undershirt he invented to keep the wearer's perspiration from showing -- the
Thompson, who sold blocks of time on private aircraft in his
previous job, had to complete his prototype, file a patent application and get
the business set up as an LLC. Salvation came in the form of several 0-percent
interest credit card offers, which allowed him to borrow $12,000 in 2011 and
2012, using convenience checks the issuers sent in the mail. As one teaser rate
expired, he rolled the amount onto another card offering a 0-percent-interest
deal, postponing the day he had to pay everything back. Meanwhile, he made the
minimum payments, to stretch his available cash.
After Thompson brought in a partner who had substantial
experience in domestic apparel production, the company's e-commerce business took
off. The profitable company, based in Orange County, Calif., now sells its
undershirts through its own website and an Amazon store. Thompson projects more
than $1 million in revenue for 2014 and has paid off all of the credit card
debts he took out to fund his startup costs, he says. "We could have paid it
off a lot earlier -- but you want to conserve as much cash as you can," he
See related: 2014 balance transfer survey: Beware combo deals, two-tier fees, Business card benefits outweigh limitations for most businesses
Published: May 13, 2014