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3 ways to finance your small-business startup

3 min read


This Spotlight on Business Credit Cards is brought to you by American Express OPEN, the leading issuer of small-business credit cards and charge cards in the U.S. OPEN offers business owners products and services to help them run and grow their businesses.

The lingering effects of the Great Recession have made the already-difficult process of financing a startup even more challenging. Small-business loans, which can be tough to secure in the best of times, have gotten even more scarce.

Angel investment can be an attractive option, but, in an article on Bloomberg Businessweek, Karen Klein writes that “you will have to get your business running and make substantial investment in it yourself before you’ll be eligible for private investment.”

And, as always, financing a startup can involve significant risk. But for creative, motivated entrepreneurs, it is possible to navigate this difficult business climate and finance a startup without going bankrupt.

Don’t quit your day job

The most straightforward way to minimize the risk of your startup is to avoid taking on large amounts of debt. That means digging into your savings and living frugally for a while. Entrepreneurs who choose to bootstrap their companies shouldn’t “spend money on anything that doesn’t have the ability to put money directly back into [their] business,” writes Wayne Mullins, founder of Ugly Mug Marketing, in an article on American Express OPEN Forum.

Ideally, 10 years from now, the cash will be flowing in from your company and you’ll be leading business meetings from the deck of your own private yacht. But in the meantime, get ready to put in some 14-hour days. Keeping your regular job until your startup takes off can provide some much-needed security and a steady stream of cash to pump into your business.

Consider a credit card

A number of high-profile entrepreneurs, including Sergey Brin and Larry Page of Google fame, have used credit cards to get their companies up and running. Plastic has some notable advantages over other kinds of financing — for starters, it’s flexible, notes Beth Orenstein. Credit cards allow you to borrow exactly the amount of money you need, when you need it. And, at time when other forms of financing are tough to come buy, small-business credit cards are still accessible for many entrepreneurs.

“The biggest pro to using credit cards in this economy is availability,” said Sam Thacker of Austin, Texas-based Business Finance Solutions, in Orenstein’s article.

However, easy access requires discretion. Without a bank or group of investors scrutinizing your decisions, you have to make sure you are spending wisely. “Credit card financing may be too easy to get for a simple business idea that’s not a real profitable business model,” said Denise Breeson, an instructor at Santa Rosa Junior College in California, also in the article.

Think outside the box

Bank loans and private investment get most of the attention when it comes to startup funding, but there are a number of more unusual methods to consider. For example, many colleges and other organizations run business-plan competitions, which provide an opportunity to secure thousands of dollars to help turn your idea into a reality. Small-business speaker Barry Moltz likens these competitions to “show business.” “You also need to be a good presenter,” he writes.

Also search for other creative ways to fund your startup, such as through government-grant programs, Moltz recommends.