According to a 1998 Federal Reserve Board survey (data from the Federal Reserve Board Survey of Small Businesses Finances, 2003 are currently being prepared), about 82.5 percent of small firms used some form of credit. Small firms use many different sources of capital, including their own savings, loans from family and friends, and business loans from financial institutions. Credit cards, credit lines, and vehicle loans are the most often used types of credit. Commercial banks are the leading suppliers of credit, followed by owners and finance companies.

Fifty-five percent of small business owners reported using a variety of traditional credit resources, while 34.1 percent used business credit cards to partially fund their ventures and 46 percent used personal credit cards to start up new businesses.

Deciding whether or not to use credit cards can be a difficult decision. Ultimately, it’s up to the individual business owner to determine the amount of risk they are willing to take. There is no "one size fits all" answer.

The main reason entrepreneurs use credit cards is the speed with which one can obtain funds. Obtaining a line of credit is relatively easy, and with the exception of capital provided by friends, family and your personal reserves, it's often the only funding available.

Says 247advisor.comfounder and business entrepreneur Ellen Thompson, “All four of my businesses relied on my personal credit cards to launch, and at times, I was seriously in debt. It was risky, but I felt at the time, and still feel in hindsight, that it was a managed risk.”

Thompson believes the risk was worth it, because, “the capital provided by credit cards helped me grow my businesses. I spent the money very carefully, and only after thoroughly analyzing the business opportunity it would fund. I only used credit card debt to investment in projects I thought would have a positive return on investment (ROI) and when conservative cash flow projections would service the repayment of interest and principal.”

But, she concedes, “my judgment isn't perfect, and I haven't always been right. One of my businesses failed, and I was left with thousands of dollars in credit card debt. I’ve also seen friends struggle with huge credit card balances left in the wake of a failed businesses.”

Often entrepreneurs choose to finance their businesses with credit cards because it’s simply what’s available. ”I used that resource to build value and several successful businesses,” says Thompson. Taking a calculated risk can pay off big, but, she warns, “if you leverage your business and it fails––and this is always a possibility––you may find yourself servicing the debt, or worse yet, ruining your financial credibility and credit for years through a bankruptcy.”

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