After many years of coaching solo-preneurs, I can assure you that feeling financially broke does NOT work well when building a business. There is something about desperately needing sales that scare every potential client away instantly.

Yet, in the early years of any new business, cash flow is likely to be very tight, and sometimes non-existent. What? Nobody warned you?  Even when your revenues are great, those first few years are often characterized by bootstrapping, reinvesting revenues back into the business instead of taking out a decent owner’s paycheck.

So this begs the question, what about credit? Is it OK for businesses to use credit? This is a complex question and no one answer. Here are my thoughts, in no particular order.

  1. If you can survive without credit, it is always going to be a better route for you. Interest adds up.
  2. If you have a history of managing your own credit cards poorly, then this might be dangerous for you.
  3. I do not believe business debt can be equated with personal debt. Personal debt is never a great thing, but they are different animals. Here is why. You can leverage debt in a business. If you already know that for every $1 of investment you make, you can output $1.50, then borrowing to invest in this model is good business.
  4. Conversely, if that $1.00 investment might not make a return or is risky return, then borrowing can magnify your mistake and make it worse. Now you have debt, interest, and a mistake!
  5. If you need a serious angel or venture capital investors for your business, realize that this can be a full-time job for a year or two to make this happen.
  6. Don’t underestimate what you can do with crowd-sourcing if you need significant funding for your business. It is worth considering.
  7. I believe the perfect situation is to have credit available to you if you ever need it, and then hopefully never need it. I also believe that using credit to smooth over monthly fluctuations in earnings is fine, as long as you can pay the balance off each month in full.
  8. If you need a larger loan for a significant investment in your business, don’t use your credit card, the interest rate is too high. It is better to get a business line of credit through your bank, or a loan through the Small Business Development Center due to the lower interest rates.
  9. Don’t forget about some of the newer crowd-lending sites like as a source of getting much-needed credit. The sums you can borrow are not vast, but they are useful, and these sites are often more willing than banks and credit card companies to lend you money when you have poor credit.

Here is a graphical representation of best practices to follow for credit card success, especially if you are young and just starting out.

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