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Posted on August 24, 2009
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Public Affairs
The Use of Credit Card Debt by New Firms
Although credit cards often fill the so-called equity gap at start-up companies, companies that continue to carry high balances have a reduced likelihood of success, a new report from the Ewing Marion Kauffman Foundation finds. Based on data from the Kauffman Firm Survey, the report, The Use of Credit Card Debt by New Firms (8 pages, PDF), found that about 58 percent of the companies responding to the survey relied on credit cards to finance operations in their first year of business, with a vast majority of those businesses relying on credit card debt to fill an equity gap. However, the report also found that every $1,000 increase in credit card debt carried by a company increased by more than 2 percent the probability that the company would fail.
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