I’m a big fan of using 0% introductory rate business credit cards to fund a company because this strategy is superior to others by a large margin.
But that doesn’t mean it’s foolproof.
The most common mistake I see entrepreneurs make is securing and deploying capital, and then not repaying it in a timely manner. That’s a surefire way to chew through your cashflow and run your business into the ground.
As unfortunate as this mistake is, the solution is pretty simple. You need to leverage that capital properly and have a solid plan to pay that debt down as quickly as possible.
So in this article, I’m going to outline a proven framework to get the most out of any capital you borrow and effectively leverage that 0% introductory rate runway while it’s in effect.
Have a plan for your capital
First and foremost—forget all the exciting stories about entrepreneurs making a dramatic bet on their big idea and winning big overnight. That’s mostly fantasy and it’s the fastest path to financial devastation.
I always recommend not using your capital for speculation. Everyone may be telling you your new idea is amazing, but the market decides that and if customers don’t end up buying, you’re still on the hook for that money.
So I always tell people to invest in only what’s already proven. Something that will almost guarantee a successful outcome.
One example might be scaling a marketing campaign that’s already working, and some others could include buying materials for a large confirmed purchase from a reliable customer and/or additional manpower to fulfil that purchase, a new facility to replace one you’ve outgrown, or machinery, equipment, and software to improve productivity.
The idea here is to invest in what you already know works. It’s about scaling, not speculation.
Have a plan to repay your debt
Accessing your capital is just the beginning. Using it is the obvious next step. But if you don’t have, and more importantly, follow a plan for what happens next, it’s likely that you’ll make financial mistakes that can take years to recover from.
The most common mistake I see is that entrepreneurs get excited when the new revenue starts rolling in and quickly start treating it as the new normal. That often leads to increased spending.
This is a two part problem.
The first is that treating any revenue with the expectation that it will always be there is dangerous. Some months may be great, others may be brutal. Revenue ebbs and flows with changes in buying patterns and economic conditions, and I’ve seen far too many cases where a company’s revenue plummets virtually overnight. If you haven’t made a significant impact on your balance before that happens, you could be in for incredibly rough times.
The second is that the longer you carry a debt, the more it will cost you. Obviously, we’re talking about 0% introductory APR business credit cards here, so as long as you’re inside that period, it’s a nonissue. But many entrepreneurs start out planning to pay off their debt inside that period and then get blindsided by a decline in revenue or an unexpected expense.
Your ROI might be awesome at first, but if you carry the debt beyond the introductory period, it can quickly dwindle to break even or even a loss over time.
So you need a concrete plan, grounded in reality, to pay that debt off inside of the 0% introductory APR period, and you need the discipline to follow it religiously.
Have a plan for your next round of funding
Accessing a round of funding, leveraging it effectively, and paying it off before accruing unnecessary costs is just the first of an ongoing cycle.
You know what works, and you have a repeatable formula, so now the logical next step is to do that again and again to continue scaling your business.
I advise our clients to start planning for the next cycle once they’ve paid at least fifty percent of their balance off. Leading up to that, you should always make your payment a week before the payment date is due, and not use the card until a day after the closing of that statement cycle.
The idea here is that once you’ve demonstrated your ability to use credit responsibly, you’re in a stronger position to request higher limits. And when requesting these new, higher limits, it may help to explain that you’re simply scaling a specific financial strategy they’ve already seen you execute successfully. The more information you can provide, the better.
This might include industry trends, purchase orders, and CRM data like customer LTV, Net Promoter Score, and conversion rates. You want to objectively show lenders that you aren’t using the capital on a hunch—you’re using it on something that’s as close to a sure thing as possible.