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Where Entrepreneurs Rely on Credit Cards to Start Businesses

Where Entrepreneurs Rely on Credit Cards to Start Businesses

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For businesses on the West Coast, credit is most likely to be king as the Riverside, Calif. and Portland metro areas have the largest percentage of entrepreneurs who started their businesses using credit cards, according to a new report from CompareCards.com.

With financing being a challenge for many entrepreneurs, some turn to credit cards to help bootstrap their businesses. But is the process of using credit cards for capital more prevalent in certain areas of the country than in others? CompareCards.com sought to find out by determining where entrepreneurs were most likely to use credit cards as a source of startup capital. The results showed that the size of the metro area and that of the business can play a role in an entrepreneur’s financing decisions.

Key findings

  • 14% of businesses with employees in the 50 largest metro areas used credit cards to start their businesses.
  • The Riverside, Calif. metro area has the largest percentage of entrepreneurs starting businesses with the help of credit cards. Of the 32,683 firms with employees in Riverside, 6,193 (18.95%) used credit cards to raise startup cash. Portland came in second, with 6,533 of 35,475 firms (18.42%) with employees- using credit cards for startup capital.
  • Milwaukee was the metro area where entrepreneurs were least likely to turn to credit cards for startup capital. Approximately 2,045 of the region’s 19,311 small businesses with employees — nearly 11% — reported using credit card financing.
  • Entrepreneurs in larger cities are less likely to use credit cards to start a business than entrepreneurs in less-populated regions. The 10 metro areas with the highest concentration of entrepreneurs using credit cards as founding capital average about 29,500 firms per metro area. In comparison, the bottom 10 metro areas average about 50,100 firms per metro area. New York, the biggest metro area with nearly 260,500 firms with employees, came in 47th, with only 11.28% using credit cards for startup capital.
  • Smaller companies are more likely to use credit cards to start their businesses. Across the 50 metro areas, the average business had about 17 employees while the average business that used credit cards for startup capital had about seven employees.

The bottom line: Business credit cards provide features that many entrepreneurs can leverage, but smaller startups may benefit more.

While business credit cards aren’t the ideal financing situation for everyone, many entrepreneurs can benefit from using them not only to help start their businesses, but to smooth out cash flow problems when there are expenses before the money rolls in.

Startups may particularly benefit since the credit requirements are typically not as strict for credit cards as they are for other business loans. Entrepreneurs starting new businesses may not have a strong business credit history and thus may find it difficult to be approved for a business loan. A business credit card can also help entrepreneurs build a business credit history, which can make it easier for them to get approved for larger loans in the future.

There are a number of ways business owners can leverage business credit cards. For one thing, business credit cards offer quick access to money. Once you’re approved and receive the card, you don’t have to wait for funds to be disbursed; you can access the money at any time. Unlike some business loans, business credit cards require no collateral.

With rewards cards, business owners may receive cash back or points that can be used for travel and business spending. Some cards offer promotional rates that let business owners pay low or no interest on purchases or balance transfers for a period of time. On a practical level, business credit cards can make it easier to track spending, and business owners may also be able to give out employee cards and track their spending as well.

But there are some risks that come with business credit cards, making them less than ideal for some. Business credit cards typically come with fees and higher interest rates than business loans, and the rates are variable, meaning they can rise or fall over time. A business owner who needs a large sum of money that won’t be repaid for a long period of time might pay a lot more in interest using credit cards than if he or she took out a business loan. Also, with business credit cards, the cardholder is personally liable for the debt, which means if the business can’t pay, the business owner will be responsible, possibly jeopardizing their credit.

Business loans typically provide larger lines of credit, lower fixed interest rates and lengthy repayment terms so you can pay the loan back in equal installments over a set number of years. That might make loans more appealing to larger companies that need more capital and want more control over their payments.  Business loans typically have stricter credit requirements and you may even have to put up assets, such as your house, for collateral. For this reason alone, credit cards could be a more accessible option for some entrepreneurs.

If you decide to apply for a business credit card, you’ll need to provide some personal information, as well as background about your business, including your legal business name, the business structure, annual revenue and tax ID number or Social Security number if you’re a sole proprietor.

But before you zero in on a business credit card, do your research, as not all cards are the same. Look for features that will align with your particular business. For example, if you expect to carry debt on the card, look for a card that has the lowest interest rate or a 0% promotional rate. If you travel a lot for your business, an airline rewards card may be your best option. Once you know what features or rewards are most important to you, you can start your search.


CompareCards by LendingTree used data from the Census Bureau’s 2016 Annual Survey of Entrepreneurs to compare the total number of firms with employees to the number of firms with employees that either used business credit cards or personal credit cards to start or acquire a business. To create the ranking, CompareCards divided the number of businesses where a credit card was used as source of startup capital by the total number of firms to get a percentage of firms in each metro area that relied on credit cards.

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