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Can't find financing for your new venture? Credit cards come to the rescue

THREE DOG BAKERY founders Dan Dye and Mark Beckloff didn't have to sit up, roll over, or beg for start-up and operating cash, so why should you? In 1989 the partners fed their fledgling dog-treat enterprise with credit-card cash advances, charging into what has since become the fastest-growing form of small-business financing. In fact, so popular is this easy, handy, fits-in-your-wallet credit-card debt that it now accounts for 33.5 percent of all small-business financing, according to a 1997 survey conducted by Arthur Andersen's Enterprise Group and National Small Business United (NSBU). The report also found that use of credit cards has nearly doubled during the past five years, while traditional sources of capital, such as commercial-bank loans, has &dined.

IT'S JUST SO EASY. Aside from offering would-be entrepreneurs who have few links to high finance an astounding opportunity, credit cards can also be lifesavers for existing businesses. After all, a cash-flow crisis can lurk around any corner. At a recent gathering of successful young entrepreneurs, one of them unfolded, accordion style, a case containing no fewer than 25 pieces of plastic, boasting, "I have a quarter million dollars right here, if I need it." And let's not forget the Three Dog Bakery gang; they've become poster boys for American Express, their ads gracing the pages of business magazines across the country. Despite high interest rates, credit-card financing is on the rise, and its beneficiaries are learning how to stack the deck in their favor.

DEAL YOURSELF IN. Dye and Beckloff fueled their start-up with four personal credit cards they obtained during their days of full-time employment, plus an American Express corporate card they received in the bakery's earliest days. Typically carrying a balance of $3,000 per card, they charged everything from cash advances for payroll to dog-food ingredients. Keeping credit cards on file with their vendors eliminated COD charges, expedited deliveries, and stretched cash flow. And by charging supplies at the beginning of their billing cycle, they gave themselves more time to hold on to their cash.

STACK THE DECK. Credit-card financing can also help you manage your business better. In addition to using the cards for travel and entertaining clients, Dye and Beckloff now count on credit cards to square away the company's quarterly expense-account summaries -- a great help at tax time and in exposing trouble spots. After reviewing a recent quarterly summary, for instance, the owners learned that some employees were tipping a hefty 40 and 50 percent at business dinners. (The summary not only categorizes card usage by employee but also separates dinner and tip charges.)

Dye and Beckloff also take advantage of the American Express leasing program, under which the cost of computers, furniture, and equipment for their eight bakeries is organized into a payment plan of one to five years of equal monthly payments billed directly to their regular statement; paperwork is thus streamlined and precious capital freed up. "Benefits like that can mean the difference between success and failure for a small business," Dye says.

PICK A CARD, ANY CARD. In addition to its credit services, American Express provides financial advisory and business services to small businesses, including free cash-flow analysis and tax planning. Its Small Business Corporate Gold charge card doesn't have a pre-set spending limit and gives exclusive discounts on FedEx, Kinko's, Mobil Gas, Hertz car-rental, and U.S. Hilton Hotel services. And because most small businesses rely on revolving credit, American Express has expanded its product line to include the Optima credit card.

As for Visa and MasterCard, they too feature a range of business-card products and benefits, among them financial services and insurance, vendor discounts (on shipping, travel, and so forth), and equipment leasing. Visa, for example, offers its business-Check Card (a debit card) and a credit line of up to $50,000 to its small-business cardholders. Participating banks issuing the Visa business cards can further supply cardholders with discounts of up to 60 percent at more than 11,000 hotels in 144 countries.

In addition, MasterCard Business Card has travel services that include 24-hour roadside assistance, replacement of travel-related tickets and documents, as well as help in finding lost luggage. And DHL Worldwide Express has partnered with MasterCard to offer business-card holders discounts on package delivery.

All three host online small-business-resource sites featuring product information, tips, and news (see box for Web addresses).

Of course, not all entrepreneurs bother with so-called business-use cards. For one thing, consumer credit cards may be easier to obtain; they're also cheaper, at least at first. You should be aware that the fine print on consumer cards states that the money is "for personal use and not for business expenses."

PAY NO INTEREST. When it comes to raising capital for major expenses like equipment or furnishings, many retail computer and furniture stores issue their own credit cards. Although their interest rates are typically higher -- often in the 20 percent range -- some merchants arrange deals that are interest-free for up to one year.

Let us repeat that: free.

Office Max, for example, offers interest-free credit for six months on purchases of furniture and electronics. Gateway customers can carry purchases for 90 days interest-free and roll the balance into a consumer loan with interest rates starting at 14.9 percent. Caveat: In some interest-free deals, the entire balance is subject to back interest if the balance is not paid by the anniversary date.

RIDE THE RATES. If you get clever about those fabulous introductory card rates, you can strategically move your balances from card to card and never pay market rates. David Zogby, president of Sundeck Tanning Studio in Brooklyn, maxed out a mix of five business and consumer cards to raise expansion capital, then kept transferring balances to pursue rates ranging from 5.9 to 11 percent. If you try this, keep on top of your statements, advises Zogby, who figures he transferred balances totaling $70,000 two or three times over an 18-month period. "Move them when [interest rates] start to rise, or speak with the credit-card companies to see if they can bring their rates back down." Don't take no for an answer, he recommends: "I would just call back a couple days later, speak with someone else, and they would say yes. If that doesn't work, ask for a manager or supervisor."

KNOW WHEN TO FOLD 'EM. "Because it's the most expensive kind of money, credit-card financing should be replaced with another form of financing two or three years into the life of the business," says Virginia R. Campbell, director of the Small Business Development Center at Saint Louis University. The best time to do so is after the business is stabilized and has a proven track record and a positive cash flow.

Replacing credit-card financing with another form of capital doesn't mean you have to cut up the cards. But if you do close accounts, be sure to check your credit report annually (call Trans Union Corp. at 440-779-7200). Make sure all your terminated accounts are accurately reported as closed by you, not the issuer.

AND FINALLY, BE CAREFUL OUT THERE. Understand that credit cards aren't going to make starting your business easy; they are just going to make it possible, says Tom Culley; author of Beating the Odds in Small Business (Fireside, 1998). The risks, of course, are that you'll overextend yourself to the point where you can't meet the minimum payments on your cards, much less repay your debts. We think you know better than to dig yourself into that kind of a hole, but if you do get in a bit over your head, don't panic.

Take a cash advance from your reserve card (you have one of those, don't you?) to make the minimum payments on the others. And if you can't make your payments on time, contact the card issuer immediately. Sometimes consumer-debt refinancing can be arranged. Ultimately, creditors want to be paid; they don't want their customers filing for bankruptcy.

Only you can decide whether you and your business stand to gain from the credit-card game. Says Culley, "If you have your head screwed on tight and you're aware of the risks, then go for it."

CREDIT CHECK

Shopping for plastic? Here's where to get the best deals

SHOPPING AROUND. For up-to-the-minute information on the best credit-card interest rates and benefits, tap into Web resources like CardWeb at www.ramresearch.com or Bank Rate Monitor at www.bankrate.com. Other good sources for card shopping: