Entrepreneurs (or anyone else): If you must use credit cards, practice the “safe swipe”
“But Everyone Is Doing It”
You know that plea some kids make in an attempt to get what they want based on their peers’ behavior: “But everyone’s doing it”? Should you, as a business founder or someone wanting to be, use credit cards, just because most of your peers use them? Ironically, the answer may lie in the same type of parental analysis that might be applied to a child’s situation. Are you mature enough to handle the freedoms and responsibilities associated with the behavior? Do you know what you’re getting yourself into?
Have you reviewed your credit card statements and account terms lately and read the fine print? What those disclosures say, once they’re translated into non-legal, is that if you use the credit card account, you understand and agree to the terms. Have you noticed that default interest rates (if you miss just one payment on time) are over 30 percent? These default rates are not that dissimilar to those of loan sharks, especially in light of the fact that they arose during a period of record lows relative to Fed-set interest rates and the corresponding prime rates (the interest rates concessions granted to financially substantial commercial borrowers). Are you aware that bankruptcy laws have changed radically and that it’s not as easy to get out of credit card debt as it used to be?
Do you realize that credit card complaints have ranked in the top four categories of consumer complaints based on data from state and local consumer protection agencies (just behind auto repairs and home improvements? for home)? Have you used your favorite search engine and combined various words and phrases like “credit cards,” “consumer complaints,” and “hate”? (Get ready to read millions of hits.) You don’t have to read far to find woeful stories written by consumers who have been tricked and trapped by credit card companies. You should understand that some banks are engaging in predatory lending practices.
There are stories told by people who signed up for a low rate for the “life of balance” only to later receive a tip that it was revealed in the fine print that the bank could change this rate based on factors like credit ratings. (and other criteria, at the sole whim of the institution). Many banks have sent out these notices even though their customers haven’t even missed a payment, which is clearly egregious. You’ll notice that these aren’t “shady and wacky” banks in relation to the names you’ll see mentioned; these are brand name banks that engage in shady business practices.
The banking industry is a powerful lobbying force, wielding considerable influence among legislators. The “haves” in history have always enslaved the “have-nots”, financially, if not literally. Don’t count on any help from your elected officials whose names appeared on the ballot in the first place due to political contributions from the industry. According to an article in the Washington Post (Jim VandeHei, March 27, 2005; page A01): “The banking and credit card companies, which lead the lobbying effort, were the main financiers of both Bush campaigns. MBNA, Credit Suisse First Boston LLC, Bank of America Corp. and Wachovia Corp. were among the top 20 contributors to Bush.” (Shortly thereafter, sweeping changes to the bankruptcy laws were passed, favoring credit card companies and the banking industry, as mentioned above, possibly the banking industry legislature, and not “theirs.”
If you must use credit cards, practice the “secure swipe”
If you decide to use credit cards to start your business (or as a consumer in general), you need to find ways to protect yourself from the risks involved. Practice “secure swipe” every time you swipe your credit card through a card reader and load your account. This is not unlike safer sex, or anything else that might put you and your well-being at risk. It helps to establish certain rules to follow.
Rule number one: Don’t be in a rush to start a business if you don’t have the resources to do so in the first place. If everyone you talk to is scared of your idea, you really need to question its feasibility in the first place. Go around each rock looking for alternatives. Finding a sponsor, such as a supplier who wants you to succeed, or finding a customer who will commit to buying and advance the money up front, would represent two of those alternatives. Save money in your personal piggy bank and accumulate resources. Start with a source of income from some activity that fuels a longer-term vision. For example, turn a part-time business into a full-time business over a period of time. Think of something small and manageable. Consider planting tiny seeds and encouraging growth until harvest time arrives.
Rule number two: Ask yourself how you are going to repay what you borrowed: Collateralize your own loan if possible. Be willing to sell something like a nicer one for a more modest one, for example. Be willing to sell as much of your “stuff” as necessary to raise funds (preferably in advance, before starting your business; if you sell when you’re desperate and out of cash, you’re in a unique psychological situation). disadvantage).
Rule number three: Consider whether or not you absolutely must have what you’re buying with a credit card. If you’re collecting expenses like payroll, ask yourself other questions, like “do I need these employees?” What alternatives have you considered instead of paying cash for your services? Perhaps you should make them partners in the business and arrange for them to invest with their own “equity capital” contributions to the business. Have you considered temps, interns, freelancers, outsourcing, or virtual assistants? Have you fully automated your business, for example, with Internet-enabled ordering systems?
Rule number four: Manage your credit card debt with a vengeance. Pay your credit card bills on time and protect your credit in every way possible. Use an automatic payment service through your checking account provider, an online service, or the credit card companies themselves; never be late. Send two payments just to increase the chances that one will arrive before the due date. Send payments by certified mail, if necessary. Do not accumulate balances if they can be avoided. Remember that almost every letter from a bank that begins with “We value your business” probably includes a change in terms; a change in terms is almost always in the best interest of the bank and not yours, with few exceptions, such as when it is the result of a legal settlement against the bank.
Rule number five: watch your own margins. Credit cards started out as a convenience so you didn’t have to carry cash; they were used as a short-term pledge against cash one had and would be paid at the end of a billing period (for example, monthly). They were not designed as a long-term source of capital. Because they are not guaranteed (although even this is changing), as a financing vehicle they tend to have higher rates. By using credit cards recklessly, you are doing the exact opposite of what businessmen should do: you are, in effect, buying (capital) at high prices and selling your good or service in circumstances that squeeze your own margins. That is not a formula for being competitive in the short or long term. If you can’t raise the price, consider ways to add value so customers are willing to pay more. If you can’t do that, maybe you should go back to the drawing board. You may have an unprofitable product or service on your hands.
The above rules take us back to the basics of a viable business idea: do you have a product or service for which you can command an adequate price, and sell and deliver in sufficient volume, at a profit, after paying all expenses? ordinary and necessary commercial? Starting a start-up to get it off the ground is admirable when it works, but lack of resources is one of the most cited reasons for business failure, so be careful. It should be noted that many entrepreneurs are short and left without health benefits, insurance, training and personal development, adequate time off and many other benefits, as well as necessities that herald their final demise. We all have ideas, and many of these ideas are pretty clever. You don’t have to be a managerial “someone” to come up with a great idea, either. (Corporations can sometimes act downright “dumb” by not harnessing the creative power of grassroots employees.) Yet the pages of business history are littered with the remains of visionary plans gone awry.
Perhaps the most critical issue is whether or not you can get the support you need in every context that is necessary to launch and operate your business. It’s a very good sign when you tell your idea to four friends and they all immediately pull out their checkbooks. Are you really ready to start your business? You’d better be pretty sure of your answer before you take the entrepreneurial plunge, especially if you plan to finance your startup with credit cards.