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The house that Jessica built with small business credit cards


Learn how small business credit cards got the Svoboda clothing line up and running.

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A size 14 since she was a teen, Jessica Svoboda (now 31 years old) was frustrated that she couldn’t find fashionable, well-proportioned clothes that fit her active lifestyle\u2014even though 60 percent of the population wears a size 12 or higher. So, passionate about fashion, she took courses in fashion design while working as a media buyer for an advertising agency. She then launched her apparel business in 2004 while continuing to work part time. The fashion-forward, plus-size clothes Svoboda’s Santa Ana, California–based company designs and manufactures are now sold through Saks Fifth Avenue, Neiman Marcus and Nordstrom, and internationally through Isetan, a Japanese department store, as well as through The company’s success has exceeded her expectations, with gross sales of just under $1 million in 2006. Svoboda projects 2007 sales will reach around $1.8 million\u2014a far cry from the days she surfed between various credit cards to keep the company afloat.

Jessica SvobodaWhy did you use credit cards to launch Svoboda?
When I started my business in 2004, I didn’t have access to any other money\u2014and I was $5,000 in debt. I knew my parents, who have run their own contracting business, would have helped had I asked, but I didn’t want them to risk their money unless I was in a place where I felt the business had enough potential to outweigh any financial risks. I didn’t seek out venture capital because I wanted to be my own boss and see what I could accomplish myself first. And I didn’t have the time to seek out micro-financing because I was so busy bringing my product to market.

With $5,000 in credit card debt, I was still able to get seven credit cards while I was working at my previous job. I financed 100 percent of my startup costs on the cards, beginning with the Discover card I’ve had since I was 18. My maximum credit limit was $1,000 to $1,500, which kept increasing as long as I paid off the balance. Eventually, I was $72,000 in debt. But I believed so strongly in my idea that I knew it was worth financing. I felt that the market was ready for plus-size fashion, and I needed to act quickly to maximize my impact on the market.

Is the apparel industry a good one for leveraging credit cards for startup capital?
Yes, if you don’t have capital. You can find a vendor who will accept credit cards for almost everything other than the clothes themselves. I would typically save my cash for payroll and production costs. I would make sure I negotiated the best possible terms from my vendors\u201430 to 60 days. That way, I could pay the vendors after we had shipped the clothes and were paid by our clients. I financed all the other expenses, such as hangers and shipping boxes, on the credit cards.

Why did you select the credit cards you did, and what were their APRs and credit limits?
The APRs ranged from 1.9 percent, for a one-year introductory rate, to 18.99 percent. The credit limits eventually ranged from $7,000 to $15,000. In the beginning, I would transfer money from card to card, juggling them to get the best possible rates. However, there came a point where I was just thankful when the charge went through! Heaven for me was when I got an American Express Gold Card, a business charge card. I applied for it pretty early on but I didn’t use it until 2005.

Within eight months of using the card, AmEx extended my credit line to between $40,000 and $50,000 a month. By the time this line of credit was available, I was able to pay it off the following month because the business was doing so well. However, I hadn’t yet gotten to a point where I could make a dent in the credit card debt of $72,000. I was paying 13 percent to 18 percent on it, which is a lot. I kept those balances close to their limit and channeled my cash flow to paying the AmEx, payroll and other bills until I was able to pay them off.

Some entrepreneurs create a self-funding pyramid by acquiring new credit cards and using the account balance transfer provision to pay off balances on old cards in full. Was this something you considered?
Because I had maxed out my credit cards to the tune of $40,000 to $50,000, it was difficult to get approved for additional cards. I was also rejected numerous times for bank loans because of the high amount of debt. My parents did eventually loan me some money, though.

When did you generate enough cash flow in your business to pay off the cards?
Once “Entertainment Today” did a segment on the business and we appeared in “InStyle” magazine, we started getting accounts at places like Saks and Neiman Marcus, and things began to turn around. I was able to hire additional help, which freed me up to deal with the financial aspects of the business. I had hit the market at the right time. Our online business was growing, which helped generate a consistent cash flow to pay down the debt.

What were the disadvantages of using credit cards to start a business?
There are some serious disadvantages, the most obvious being cost. The interest comes directly from your profit, as I couldn’t pass along the debt in the form of higher prices. My product was very price sensitive, and [fashion is] a very aggressive business. I protected my credit rating by paying the minimum balances or, in the case of the American Express Gold Card, the full balance. Another disadvantage to having large credit card debt is that it prevents you from securing lower-cost financing from banks once your business takes off.

The advantages?
The key advantage to financing with credit cards is that the money is available immediately\u2014especially if you secure the credit lines prior to quitting a full-time job, if you have one. And when lines of credit are available immediately, it allows you to move forward quickly.

Do you use credit cards in the day-to-day operation of your business?
Absolutely! I use them whenever I can. I still have the same credit cards and charge card I had when I started the business\u2014but I got rid of that Discover. Using the cards gives me an additional 15 to 20 days of free financing, but I try to pay them off in full every month. I enjoy their flexibility; if you can’t pay them off one month, you can wait until the following month.

Some credit card companies offer a quarterly management report or other ways to manage your business. Do any of yours? Is this helpful?
My AmEx offers that service, but I don’t find it very helpful. Some management tools allow you to upload all your credit card accounts into one report, but it costs money for this service. I prefer to manage it myself with QuickBooks. Tracking daily expenses through QuickBooks is one of the most important things we do, allowing us to make educated decisions about cash flow, which allows me to focus on growing the business.

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