How many Australian startups are funded by credit card?

Sally McMullen 24 February 2017 NEWS

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Credit cards are one of the top 5 most popular ways to fund Aussie startups.

Almost 15% of Australian startups are partially funded by credit cards according to the 2016 annual report from Startup Master. The study investigated the types of Australians starting startups, how they're funded and what they specialise in and involved 1,478 startup founders, 432 potential founders and 801 startup supports.

The results showed that 14.9% of Aussie startups used a credit card, making it the fifth-most-common way to get a financial leg up when funding a new business. Ahead of credit cards, 70.6% of startups used their own cash contributions, 32.6% relied on private equity from Australiam sources, 28.8% borrowed from family and friends and 22.6% used an R&D tax offset. Less popular alternatives included government grants and private equity overseas.

As you can see in the chart above, it’s obvious that many startups use more than one form of capital to fund their business. So, it’s unlikely that the 14.9% of Aussie startups who used credit cards solely funded their businesses by paying on plastic.

Regardless, is it a good idea to fund your startup with a credit card? While every business is different, it has worked for some. For example, Scott Farquhar and Mike Cannon-Brookes funded the beginnings of their multi-billion dollar enterprise software company Atlassian with a $10,000 credit card.

Using your credit card can improve your cash flow and give you the resources to purchase the necessary tools and equipment to get the business of the ground. Plus, if you use a business credit card, you can enjoy corporate-related perks such as the ability to earn reward points on business purchases, multiple additional cards for employees and tracking systems to manage your expenses. Business credit cards also usually come with higher credit limits than personal cards, giving you more financial flexibility. If you use a business credit card under the name of the startup, it can also be a smart way to build healthy credit for your business which will come in handy when applying for future loans and lines of credit.

There are some risks to supporting your startup with a credit card, though. Of course, an access to a line of credit could tempt you to overspend and result in debt. This is why you should set a budget before you start spending and create a payment plan to ensure you can pay your balance in full each statement period to avoid accruing interest. Depending on how you’re using the credit card, you might only want to use plastic as a short-term financing strategy while you’re trying to kickstart your cash flow.

As with any credit card, if you’re considering using plastic to help fund your startup, make sure to compare your options before you apply. There is no one best credit card for startups and it’s crucial that you find a card that suits your business’ financial situation and needs to make it work for you.

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Picture: Shutterstock

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