Credit Card Entrepreneurs

Credit Cards and Famous Startup Success Stories

Many hugely successful entrepreneurs seem to recount their use of credit cards with a touch of pride. When Google founders Sergey Brin and Larry Page decided to start a company, the two “spent about $15,000 on a terabyte (one million megabytes) of disks. We spread that across three credit cards,” Brin told reporter Robert McGarvey in a 2000 interview in MIT Technology Review.

Joe Gebbia, a founder of Airbnb, joked in a 2016 podcast of How I Built This with Guy Raz that a round of financing was called “The Visa Round.”

“We would go through Visa after Visa to MasterCard and then finally to Amex just maxing out credit cards. And that’s how we funded ourselves,” Gebbia said.

Brian Chesky, CEO of Airbnb Inc. speaks of personally running up about $25,000 in credit card debt in a 2017 CNBC article. The cards were kept in a binder that were designed for baseball cards, Chesky told CNBC.

Sara Blakely, founder of Spanx shapewear and apparel company, posted on LinkedIn that she trademarked “Spanx®” for $150. “Used my credit card and everything,” she wrote.

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Yet, credit cards remain “one of the most-debated sources of small business financing in the U.S economy,” according to Credit Card Entrepreneurs. While it’s an important source of financing for a small business to respond to company shocks, like overdue invoices, cash flow issues or unexpected expenses, the flexibility comes at a cost, the paper goes on.

“The high interest rates on credit card debt increase debt service burdens, which can dynamically erode firm’s cash flows and slow the recovery,” reads Credit Card Entrepreneurs.

As Gebbia put in the podcast, “There’s no worse feeling than getting a credit card statement that’s only going up with no hope of ever paying it down.”

According to Credit Card Entrepreneurs, young companies–mainly those in business for less than 10 years–have the highest use of credit cards. The reliance on cards declines as businesses mature, the paper says.

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Besides flexibility, entrepreneurs cite the “lucrative rewards” offered by some credit cards as the main advantage of using plastic, the paper says.

Annissa Huling, owner of Phlebotomy Healthcare LLC, which offers mobile phlebotomy services in Pennsylvania, New Jersey and Delaware, says she uses credit cards to keep track of her expenses.

Similarly, Janet Piper, an heirloom and estate consultant who specializes in downsizing and consignment services with her company Piper’s Antiques and Collectibles in Chadds Ford, Pennsylvania, says the card statements serve as a bookkeeping aid.

Indeed, like Airbnb, credit card capital can be key to bootstrapping a business.

“The best source of capital for most entrepreneurs is a business credit card,” reads How to Access Capital for Your Business, on the website for D’Aniello Institute for Veterans and Military Families at Syracuse University.

 “Credit cards can help smooth out a business’ finances month to month, help with emergencies, and even finance some larger growth-minded purchases within the card’s credit limit. They’re also a great way to keep business finances better separated from personal expenses, which can make tax season a little less complicated. Credit cards can also help you establish or repair your credit score, if necessary, which can improve your access to other forms of capital.”

More Credit Card Tips for Startups

Benjamin Szweda, owner of Szweda Consulting LLC, a bookkeeping firm based in Cleveland, Ohio, offers these tips for entrepreneurs using credit cards.

Shop around for the card that best suits your business needs. 

I’m a big fan of rewards. Research not only the miles and points you can earn, but also the ancillary benefits, such as airport lounge access and hotel elite status. Bonus categories are also worth researching. Some cards offer more rewards in one category compared to another, such as 3X the points on flight purchases compared to 4X the points on dining. For those who aren't as excited about collecting points and miles, there are plenty of great cash-back cards available.

Take what the bank offers in terms of credit limit.

Having a higher amount of available credit can help your credit score.

When it comes to annual fees, you want to plan a way to recoup them. 

For example, one popular credit card offers $100 annually in rideshare credits. This benefit goes towards recouping the $150 annual fee charged by this card. If you're worried about forgetting to make payments and incurring late fees, set up auto pay, at least for the minimum balance. 

Reward cards are often paired with high interest rates.

I would approach credit cards with the goal of paying the balance in full each month. If you need credit for your business, consider searching for lines of credit and loan options instead of credit cards. Although these options may be harder for startups to access, paying a variable APR of 18 to 30% on purchases is not a good plan. If an emergency arises and you cannot pay the card in full, try to keep your utilization below 30% of your credit limit. 

Keep business and personal purchases on separate cards.

Pay the business card with your business checking account. These two things will make your business bookkeeping a lot easier and keep your accountant happy. Also, be sure to get your monthly statement and reconcile it to your accounting software. This simple process ensures no transactions are recorded twice in your general ledger and that you won't be missing out on any tax deductions.