There are many ways to get money to start a company, some better than others, but for this post I plan on focusing on one type of financing: credit cards. Yes, I know this sounds risky, but if used in the right situation the risk is minimal.

A good example is my current start-up. I needed $20-25k for my half of the partnership, which I had in cash and investments outside of my retirement. I could use this cash as the initial investment, but the investment would drain my current non-retirement savings. I never feel comfortable without some easily accessible assets, so I decided to use my current credit cards and a couple new ones to cover 80% of the partnership investment.

Of course, it would be foolish to put this money on a 15% interest credit card, as you would be severely restricting the profitability of your venture. However, because I have a good credit score and I am breathing, I get the usual 0% financing options from credit companies for 4-8 months.

The 0% financing from the credit card companies isn’t always free. A good portion of the offers have a balance transfer fee of 3%. This is a one time fee and it will be the only cost associated with these transactions, if the monthly payments are made on time and the balance is paid off before the 0% offer ends.

The beauty of the 0% financing method is the matching time frames between the 0% rate and the time it will take for business inventory to turnover. This means I will be able to use business sales to pay off the 0% loan before the rate jumps to a killer 10-20%. I will then roll over the cost of the new inventory onto the 0% financing offers, while using the profits to expand the business. All of this means I have to put very little of my own cash directly into the business, which allows me to keep it invested in the market.

I know this seems risky, and it could be, but it is almost impossible for the value of the inventory to drop more than 20-30%. This really limits my losses and means I can easily cover any unpaid debt with my own cash, even if the business does not become profitable.

Key Points:

• 0% offers are never free. Find out the cost and factor it in to your calculations. In this case it’s 3% for some of the cards and much lower for others.
• Never use this method for high risk venture. For instance, don’t use this method to put $30k on an upcoming IPO.
• Ensure you have enough cash to service the debt, even if you don’t make any money on the investment.
• Make sure you can pay off debt before the 0% offer period ends. Hardly any business can survive on 15% debt.
• Make all payments on time, even if you have to use your own money. This will prevent the rate from jumping up before the 0% offer period ends.
• Keep the cards with the business balances separate from your day-to-day card, as it will be easier to track payments and expenses.