{"id":880,"date":"2020-11-04T07:30:59","date_gmt":"2020-11-04T07:30:59","guid":{"rendered":"https:\/\/thenextweb.com\/?p=1326666"},"modified":"2020-11-04T07:30:59","modified_gmt":"2020-11-04T07:30:59","slug":"what-i-learned-from-funding-my-second-startup-with-a-credit-card","status":"publish","type":"post","link":"https:\/\/www.londonchiropracter.com\/?p=880","title":{"rendered":"What I learned from funding my second startup\u2026 with a credit card"},"content":{"rendered":"\n
<\/div>\n

No matter what kind of startup you dream of creating, you\u2019re going to need some funding to get it off the ground. And as an entrepreneur, there are more ways than ever to get the money you need \u2014 e.g. investors, traditional loans, crowdfunding, grants, or whatever you want. <\/span><\/p>\n

You can even our own credit cards\u2026 which is exactly what I did for my second startup. Long story short? It\u2019s not a method I\u2019d recommend!<\/span><\/p>\n

However, I did learn a thing or two in the process, hopefully these lessons can help you out in your own entrepreneurial journey.<\/span><\/p>\n

Correct estimation of effort<\/b><\/h2>\n

The issue with most startups is that they\u2019re woefully underfunded \u2014 it\u2019s why the general rule that it takes two to three times the time and money you think it will need. <\/span><\/p>\n

So, as you can imagine, fully funding my second startup with personal credit cards was a very stressful way to go about things, putting myself into that much debt right from the start. <\/span><\/p>\n

The trick to all this is the correct estimation of effort. Not accurately estimating the amount of time, money, and effort it will take to build a successful startup is why so many of them fail. Just because your idea is a good one doesn\u2019t protect you \u2014 if you don\u2019t have things mapped out and properly funded before you dive in, you\u2019re bound to fail.<\/span><\/p>\n

The need for outstanding, thorough market research<\/b><\/h2>\n

What you need right from the start is a good product-market fit. This simply means that you\u2019ve come up with a great service or item that has a lot of customer interest or demand (and potential continued demand for the future). <\/span><\/p>\n

Making sure that you have product-market fit, however, takes some work \u2014 you have to do really good research, which includes thorough surveys and pilot offerings, to know what your potential customers think of your Minimum Valuable Product (or, MVP). <\/span><\/p>\n

Once you know how they\u2019re reacting and that you have customers willing to pay, you can get a pretty good sense of what the startup is going to take to be viable.<\/span><\/p>\n

With this in mind, if you don\u2019t do your homework, then it\u2019s incredibly easy to underestimate the amount of money your startup is going to need. And regardless of how you\u2019re funding your startup, if you don\u2019t have enough to get things off the ground \u2014 you fail.<\/span><\/p>\n

Because it\u2019s true \u2014 you need to spend money to make money. So the key is to \u201cknow before you go.\u201d And that might mean using your evenings and weekends to put in more time researching, but it\u2019ll be worth it in the end because you\u2019ll have a solid foundation to start from to ensure that any money you (or others) invest won\u2019t be going down the drain.<\/span><\/p>\n

Unnecessary sacrifices<\/b><\/h2>\n

Investors who might be interested in your startup are going to want specifics on valuation and what they\u2019ll get back from you over time. Borrowing more for your business than you first anticipated on a credit card is tough in more ways than one \u2014 you put yourself in a very tough spot personally, but it can also make it hard to convince others you\u2019ve really thought your concept through or that they\u2019ll see a good return with decent liquidity.<\/span><\/p>\n

Of course, consider interest rates from the practical, logistical side, too. Although you might be able to get a 0% introductory offer, personal credit cards can have interest rates that range anywhere from <\/span>15 to 25%<\/span><\/a> after that introductory period ends. That\u2019s significantly higher than other funding choices. <\/span><\/p>\n

A Small Business Administration (SBA) loan, for example, usually is only <\/span>5.5 to 8%<\/span><\/a>. So using a credit card is an expensive route that\u2019s going to take you much longer to pay back \u2014 and the longer you\u2019ve got money tied up in debt, the longer it will be before you can channel money into real growth and innovation.<\/span><\/p>\n

Remember, too, that putting a lot on credit cards due to poor research can also have long-term ramifications outside of the business. It can lower your credit score, which can take other things you want \u2014 for example, a new house or sending your kids to college \u2014 off the table. And lots of people have trouble mentally processing how much they\u2019re spending when they use plastic. <\/span><\/p>\n

More than one well-meaning and excited entrepreneur has gotten their startup into trouble by seeing their cards as a source of bottomless funding. <\/span><\/p>\n

Friends and family aren\u2019t a bank<\/b><\/h2>\n

When you use credit cards to fund a startup, you might turn to friends or family to help you maintain good cash flow and pay the cards off every month. Or perhaps you want to ask them for a loan so you don\u2019t have to use your cards in the first place. Either way, without evidence of a good product-market fit, you really don\u2019t know that their investment won\u2019t be lost. <\/span><\/p>\n

It\u2019s one thing to gamble with your own financial future but gambling with someone else\u2019s requires a whole new level of accountability. So if you\u2019re going to ask friends and family for a hand, make sure they understand exactly what it is they\u2019re getting into. Don\u2019t ask for money they don\u2019t have or aren\u2019t willing to lose. <\/span><\/p>\n

The bottom line<\/b><\/h2>\n

Starting a business with your own personal credit cards might seem to have its advantages. For instance, they can be easy to get if you already have good credit, help you build a credit history for your business so it\u2019s easier to get loans later and give you more flexibility in terms of cash flow. Perks like points and cash bonuses can also look attractive. <\/span><\/p>\n

But based on what I went through with my own venture, these benefits aren\u2019t enough to offset the higher long-term costs and risks plastic offers \u2014 to say nothing of the extra stress that any entrepreneur doesn\u2019t need more of! <\/span><\/p>\n

You\u2019re far more likely to up the odds in your startup\u2019s favor if you look at other choices that provide lower interest rates and the ability to become debt-free in less time. But no matter which funding option you go for or how much you require, always make sure you verify your product-market fit to fully understand your situation <\/span>before<\/span><\/i> you borrow.<\/span><\/p>\n

Published November 4, 2020 \u2014 07:30 UTC <\/p>\n

Source<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

No matter what kind of startup you dream of creating, you\u2019re going to need some funding to get it off the ground. And as an entrepreneur, there are more ways than ever…<\/p>\n","protected":false},"author":1,"featured_media":881,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=\/wp\/v2\/posts\/880"}],"collection":[{"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=880"}],"version-history":[{"count":0,"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=\/wp\/v2\/posts\/880\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=\/wp\/v2\/media\/881"}],"wp:attachment":[{"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=880"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=880"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.londonchiropracter.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=880"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}