by Joseph Kenny | 08/31/09

It is an unfortunate reality that for every $1,000 in unpaid credit card debt, a new business venture increases the chances that it will close by approximately 2.2% as compared with those start-up businesses that do not have such debt.

Such statistics should make any conscientious business owner think again about using credit cards for business financing.

Studies like those conducted by the Ewing Marion Kauffman Association are putting a spotlight on the high costs that credit cards can have on the rate of growth for the hundreds of small business ventures around the country.

The recent study noted that credit card debt will significantly increase the odds that the business will fail within its first three years of operation.

Economics researcher Robert H. Scott echoed the findings of the Ewing Marion Kauffman study in his own study released in August.

Scott, an assistant professor of economics and finance at the Leon School of Business, suggested that not only is it extremely expensive for businesses to rely on credit card debt, but it also leads to financial instability.

The study revealed that nearly 6 out of 10, or 57.9% of some 5,000 businesses that participated in the study used credit cards for start-up capital. The report examined card usage during 2004, the year these businesses were established, through 2006.

In today's economic climate, the negative effects of using credit cards in the capacity are much higher. This is due in large part to higher interest rates and fees as well as reduced credit limits. Even the major card issuers are charging rates of 30% or more in certain instances.

Despite these figures, the numbers of small businesses using credit cards to start-their ventures is on the increase. The same is true of existent companies who are using plastic to fund daily operations since other loan resources have vanished.

As a result, the levels of small-businesses owners who find themselves in the hole financially but unable to get loans because of rampant credit card debt are also on the rise.